The world of finance and lending has never been particularly welcoming to women looking to climb the ladder and lead major financial institutions. According to Mckinsey, less than one-third of SVP and C-suite roles at financial institutions are filled by women, despite women making up 53% of entry-level finance positions. Deloitte puts that number even lower, with just 24% of leadership roles filled by women and only 9% in senior leadership positions.
These figures are striking, and a clear sign this industry isn’t tapping into the creative minds and diverse experiences that could help us deliver better products and services. Given many women start in entry-level positions and do not advance into leadership is a loss of institutional knowledge, front-line experience, and untapped potential. There is a solution. If companies mentor and nurture talent, that untapped potential can lead to institutional change, and there is a strong business case for doing so. Thetop companies know this. Eighty-four percent of Fortune 500 and 100% of Fortune 50 companies have formal mentorship programs. Those companies with mentorship programs are more profitable and experience less turnover than those without similar programs. Moreover, those companies with a female CEO in 2020 weathered the pandemic and the economic downturn better than those with a man at the helm.
Creating an effective mentorship program doesn’t have to be complicated or time-consuming, but it does require commitment. Below are a few considerations to implementing a mentorship program.
1. Your investment will yield dividends.
Yes, it’s great to provide opportunity to people, but it also has to make dollars and sense, and mentorship programs deliver on that front. Sixty-seven percent of businesses with mentorship programs report an increase in productivity, while 55% say it has positively impacted their profitability.
There are also cost benefits that don’t appear on the balance sheet. Employees with a mentor are much more likely to stay at a company if they are involved in a mentorship program. The Wharton School found that retention rates were 72% and 69% for mentees and mentors, respectively. For those who didn’t participate, retention was just 49%. Even more compelling was that mentors were promoted six times more often than those not in the program, and mentees were promoted five times more often.
The Harvard Business Review found that CEOs who receive mentorship are better at making decisions, helping them avoid costly mistakes. It stands to reason that employees at all levels can become better, more productive employees with a similar level of guidance.
2. Both the mentor and the mentee will benefit.
Productive mentor programs require the mentor and mentee to get something out of the arrangement. Luckily, most employees who participate in these programs report a high level of engagement and satisfaction.
The benefits to the mentee seem fairly obvious, e.g., improving skills, having a sounding board, increasing one’s professional network, and gaining valuable industry knowledge. The benefits to mentors may be less obvious, but the impact is real. A Coqual report found that involvement in a mentorship program helped 57% of mentors improve their own skillset, and 43% of mentors walked away with a better understanding of their customers.
The key to successful mentor/mentee relationships is to think about the pairing and how the personalities might complement each other. Don’t expect things to click instantly. It’s important to allow at least six months of regular interaction to develop trust and rapport.
3. You’re creating a culture, not just a program.
It’s easy to think of mentorship as just another offering in the employee handbook, but the results go much deeper. In creating an environment that provides mentor/mentee learning opportunities, you’ll change the culture at your company in a way that encourages learning and the passing on of knowledge. One study showed that 90% of employees with a mentor reported being happy at work. Furthermore, the majority of mentees who stay with a company go on to mentor others to share the experience. That’s a powerful way to impact change at a company and demonstrate a commitment to helping employees advance their careers.
In the end, the case for mentorship is clear. The question isn’t can we afford to do this, but how can we afford not to?
For generations, the idea of career mentorships has been primarily driven by a philanthropic approach. Older professionals assume responsibility for imparting knowledge to the younger, and industry experts generously share their expertise with anyone scrappy enough to seek guidance. Traditionally, mentorship has been an imbalanced give-and-take, where wisdom is passed along as a form of charitable donation.
However, a significant shift is underway, and it could signal a substantial transformation for workplace mentorships and the future of work. The concept of mentorship is evolving from a purely altruistic endeavor to one that acknowledges the profound value that time-earned wisdom and specialized expertise bring to the table. In line with this paradigm shift, trademark attorney Rosezena J. Pierce advocates for a new perspective: individuals seeking career mentorships should be willing to invest in them. “This is an age of information. A lot of people expect to be compensated for the time they invest in sharing their knowledge,†she told ESSENCE.
Today’s dynamic landscape demands a paradigm shift. In a skills-based economy, where monetizing expertise has become the norm and prevailing economic conditions drive many individuals to rely on side hustles to make ends meet, it becomes imperative for both individuals and corporations to reevaluate their strategies for earning, learning, and disseminating knowledge. A shift to a more reciprocal and mutually beneficial perspective on mentorship is essential.
Here’s why both companies and individuals should consider investing in the exchange of knowledge through paid mentorship programs.
Elevating Mentorship: You Respect Where You Invest
When money’s on the table, everyone brings their A-game. “I’ve gotten the most out of the mentorships I had to pay for,†Pierce shared. “I showed up differently because I invested in them, and the mentor showed up differently because they were being paid for their services.â€
It’s not just about dollars and cents; it’s about a shared commitment that propels both the mentee and mentor to elevate their contributions. This investment goes far beyond financial contributions—it’s an investment in each other’s professional development and success.
From the factory floor to the executive suite, seasoned professionals bring insights earned through years of hands-on experience. While advances in tech, like generative AI, enhance data-driven decision-making, they’re no substitute for institutional knowledge. In mentorship, the wisdom derived from hands-on experience is irreplaceable.
Experienced mentors offer less experienced mentees the profound benefit of lessons learned from successes and setbacks. They’ve seen things and developed instincts translating to profound insights that can’t be replicated by a computer program or code. That’s worth a lot.
Compensating senior workers or retirees for mentoring mid-level managers aligns with the changing dynamics of workplace mentorships. It is an investment that not only preserves and transfers critical institutional knowledge but also contributes to the continuous growth and success of the organization in a rapidly evolving business environment.
Investing in paid career mentorships is a win-win-win. As we navigate a skills-based economy, where monetizing expertise is the norm, the call for a more reciprocal and mutually beneficial approach to mentorship is reasonable, equitable, and valuable for all parties involved.
Warren Buffett released his 2024 annual shareholder letter on Saturday, drawing the immediate attention of investors and business leaders worldwide. As stakeholders parsed the document for insights into Berkshire Hathaway’s condition, they were rewarded with the wisdom that has made Buffett a legendary figure in finance. This marks the 60th year of Berkshire under his leadership, with the conglomerate’s market cap now exceeding $1.1 trillion. While its unprecedented success is evident, the intellectual architects who shaped Buffett’s investment philosophy deserve recognition for their contributions to this remarkable legacy.
Benjamin Graham: Establishing the Value Framework
Benjamin Graham, widely regarded as the father of value investing, provided Buffett with his fundamental understanding of markets. Graham’s essential principle—that purchasing a stock means acquiring partial ownership in a business—revolutionized Buffett’s market approach. Rather than seeing stocks as tradable securities, Graham taught Buffett to analyze the underlying business and determine its intrinsic value. This perspective enabled Buffett to look beyond market volatility and make decisions based on business fundamentals rather than price fluctuations.
Philip Fisher: Mastering Deep Research Techniques
While Graham supplied Buffett’s value foundation, Philip Fisher introduced him to the critical importance of comprehensive research and high-quality businesses. Fisher’s “scuttlebutt” methodology—collecting intelligence about companies from diverse sources including competitors, suppliers, and customers—became integral to Buffett’s research process. Fisher’s emphasis on identifying companies with sustainable competitive advantages, or “moats,” significantly influenced Buffett’s gravitation toward businesses with enduring market positions and pricing power.
Ed Thorpe: The Mathematics of Risk and Concentrated Positions
Ed Thorpe contributed two vital elements to Buffett’s investment approach: survival prioritization and strategic concentration. Thorpe’s principle that investors must first ensure survival before pursuing returns helped shape Buffett’s disciplined risk-management philosophy. Additionally, Thorpe’s strategy of making concentrated investments when possessing a clear advantage reinforced Buffett’s comfort with portfolio concentration. This influenced his willingness to make substantial commitments when identifying exceptional opportunities, rather than diluting returns through excessive diversification.
Charlie Munger: The Quality Revolution
No individual has influenced Buffett’s evolution as an investor more profoundly than Charlie Munger. Munger guided Buffett’s transition from Graham’s strict value approach toward focusing on exceptional businesses available at reasonable prices. He particularly emphasized the power of companies that could transform commodities into branded products commanding premium margins. Munger’s influence led to Buffett’s iconic investments in companies like Coca-Cola, where brand strength and operational efficiency created durable competitive advantages.
The Management Masters: Leo Goodwin, Tom Murphy, Henry Singleton, and Bob Kierlin
Geico’s Leo Goodwin, Capital Cities/ABC’s Tom Murphy, Teledyne’s Henry Singleton, and Fastenal’s Robert Kierlin exemplify the exceptional executives who shaped Buffett’s appreciation for superior leadership. Murphy’s disciplined capital allocation at Capital Cities/ABC, Singleton’s pioneering share repurchase strategy at Teledyne, and Kierlin’s innovative distribution approach at Fastenal demonstrated how skilled management could generate extraordinary shareholder value through different methodologies. Their collective influence taught Buffett the importance of identifying and backing talented leaders capable of building enduring cultures of excellence. This appreciation for exceptional management has guided his preference for retaining successful leadership teams after Berkshire acquisitions, allowing them to continue creating value with minimal interference.
The collective wisdom of these mentors transformed Buffett from a pure value investor into a more sophisticated practitioner focused on business quality, competitive durability, and extraordinary management. Their teachings emphasized that successful investing requires more than identifying undervalued stocks—it demands understanding business fundamentals, conducting thorough research, managing risk effectively, recognizing quality, and backing superior leadership. These principles have not only directed Buffett’s personal success but have become the foundation of Berkshire Hathaway’s enduring investment philosophy and exceptional market performance over six decades.
Trend following, an investment strategy par excellence, hinges on the premise of capitalizing on market momentum. It’s predicated on the philosophy that financial markets exhibit discernible trends over time, which, if identified and followed, can lead to substantial gains. This approach eschews the traditional paradigms of market forecasting or company-specific analysis, instead focusing on the movement of market prices themselves as the primary indicator of where to invest.
At its core, trend following involves a systematic, quantitative approach to market analysis. Traders employing this method rely on algorithms and models that identify potential trends in asset prices. Once a trend is identified, the strategy dictates that one should invest in a manner that aligns with the direction of the trend – buying assets in an uptrend and selling or shorting assets in a downtrend. The beauty of this approach lies in its simplicity and adaptability; it can be applied across various asset classes, including stocks, bonds, commodities, and currencies, making it a versatile tool in an investor’s arsenal.
Importance of Trend Following in Investing
The importance of trend following in the investing world cannot be overstated. This strategy offers a robust framework for managing risk and maximizing returns in an inherently unpredictable market. One of the key advantages of trend following is its ability to profit in both rising and falling markets. Unlike traditional buy-and-hold strategies, which are heavily reliant on continually rising markets to yield returns, trend following thrives on volatility and market movement, regardless of direction.
Moreover, trend following provides a psychological edge. By relying on systematic, rule-based decision making, it removes emotional biases that often hinder investment performance. In tumultuous market environments, when investor sentiment can swing wildly, having a disciplined, emotion-free approach is invaluable. This method also offers diversification benefits. Since it can be applied across a range of asset classes, it allows for a more balanced and diversified investment portfolio, reducing the risk of significant losses due to market downturns in any single asset class.
Understanding Market Trends
Different Types of Trends
Deciphering market trends is a cornerstone of the trend-following approach, necessitating a deep understanding of their various manifestations. Predominantly, trends in financial markets can be classified into three archetypes: uptrends, downtrends, and sideways trends. Each of these trend types presents unique characteristics and trading opportunities.
Uptrends: An uptrend is characterized by a sequence of higher highs and higher lows in asset prices, reflecting a market in a state of progressive ascent. This phenomenon indicates a prevailing sentiment of optimism among investors, often spurred by positive macroeconomic indicators, favorable corporate earnings reports, or other catalysts that instill confidence in the market’s future trajectory. In an uptrend, the demand for assets outpaces supply, propelling prices upward. Recognizing the onset of an uptrend and strategically positioning one’s portfolio to capitalize on this upward momentum is a quintessential aspect of trend following.
Downtrends: Conversely, a downtrend is marked by a series of lower highs and lower lows, signifying a market in decline. This trend typifies a period of pervasive pessimism, where negative factors such as economic downturns, geopolitical unrest, or disappointing corporate performances dominate market sentiment. In a downtrend, the supply of assets exceeds demand, leading to a depreciation in prices. Astute trend followers perceive downtrends not merely as threats but as opportunities to profit through short-selling strategies or by reallocating investments to more stable asset classes.
Sideways Trends: Sideways, or horizontal, trends occur when an asset’s price moves within a relatively stable range without a definitive direction. This pattern indicates a market equilibrium where supply and demand are closely balanced, often reflecting a period of uncertainty or consolidation. Recognizing a sideways trend is crucial, as traditional trend-following strategies may yield limited results in such market conditions, necessitating alternative approaches or a more cautious stance.
Price Patterns: Price patterns are formations created by the fluctuations of an asset’s price on a chart. These patterns, such as head and shoulders, triangles, or flags, can offer predictive insights into future price movements. For instance, a head and shoulders pattern may signal a reversal from an uptrend to a downtrend. Mastery of pattern recognition enables investors to anticipate potential market shifts, positioning themselves advantageously in response to emerging trends.
Moving Averages: Moving averages are pivotal in smoothing out price data to discern a clearer trend direction. By averaging the prices of an asset over a specific time frame, be it short-term (like a 10-day moving average) or long-term (like a 200-day moving average), these tools help identify underlying trends amidst market noise. A common strategy involves observing the crossovers of short-term and long-term moving averages, which can indicate potential bullish or bearish market turns.
Trendlines: Trendlines are straight lines drawn on price charts, connecting a series of highs or lows. In an uptrend, a trendline is drawn along the higher lows, and in a downtrend, it is drawn along the lower highs. These lines not only help in identifying the prevailing trend but also in determining potential areas of support and resistance. A breach of a trendline may signal a weakening trend or an impending trend reversal, offering key insights for timely investment decisions.
A profound comprehension of market trends and their characteristics is vital for successful trend following. By skillfully employing these analytical tools, investors can navigate the complexities of market dynamics, making informed decisions that align with the prevailing market sentiment.
The Principles of Trend Following
Trend following, a strategy steeped in the art of precision and the science of probability, is governed by a set of fundamental principles. These tenets form the bedrock upon which successful trend-following strategies are built, ensuring that traders navigate the tumultuous waters of the financial markets with acumen and foresight.
Go with the Flow: Trading in the Direction of the Trend
The cardinal rule of trend following is encapsulated in the maxim: “Go with the flow.†This principle advocates for aligning trades with the prevailing market trend. The rationale is straightforward yet profound: it is more probable to garner profits by riding the existing momentum of the market rather than going against it. By identifying and aligning with uptrends or downtrends, traders increase their chances of success, capitalizing on the market’s inherent tendencies to persist in a particular direction. This approach eschews the precarious endeavor of predicting market reversals or timing market tops and bottoms, instead embracing the pragmatic strategy of trend alignment.
Risk Management
Integral to the fabric of trend following is an unyielding commitment to risk management. This discipline is the bulwark against the capriciousness of markets, designed to preserve capital and sustain trading longevity.
Position Sizing: Position sizing is a critical aspect of risk management, dictating the amount of capital allocated to each trade. The goal is to size positions in a manner that balances the potential for profit with the risk of loss. This involves calculating the optimal trade size based on the volatility of the asset and the trader’s risk tolerance. A prudent position-sizing strategy ensures that no single trade jeopardizes the trader’s portfolio, allowing for the absorption of losses without derailing the overall investment strategy.
Stop Losses: The use of stop losses is another cornerstone of risk management in trend following. Stop losses are predetermined exit points that automatically close a trade at a specific price level, thus limiting potential losses. These are set at levels where the initial rationale for the trade is invalidated, signaling a potential trend reversal or an erroneous trend identification. By implementing stop losses, traders enforce a disciplined approach to cutting losses, safeguarding their portfolios from significant drawdowns.
Avoiding Emotional Decisions
In the realm of investing, emotions are often the nemesis of rational decision-making. Trend following, with its emphasis on systematic analysis and rule-based trading, seeks to mitigate the influence of emotional biases. Emotional decisions, such as fear-driven selling at market bottoms or greed-fueled buying at market tops, are antithetical to the principles of trend following. By relying on objective indicators and predefined strategies, traders insulate themselves from the psychological pitfalls that often ensnare market participants. This detachment from emotional reactivity enables traders to make decisions that are aligned with their long-term investment objectives and market realities.
The principles of trend following coalesce to form a robust, disciplined approach to trading. By adhering to these tenets, traders can navigate the complexities of financial markets with a strategy that is grounded in logical analysis, risk mitigation, and emotional equanimity. This approach, while not without its challenges, offers a path to consistent, long-term success in the ever-evolving world of investing.
Trend Following Strategies
In the arsenal of a trend follower, a variety of strategies and tools are employed, each with its unique methodology and theoretical underpinnings. These strategies, when applied judiciously, can harness the momentum of market trends, leading to potentially lucrative outcomes. We will explore some of the quintessential strategies in trend following: Moving Average Crossover, Breakout Trading, Donchian Channels, Parabolic SAR, and the application of the Relative Strength Index (RSI) in trend following.
Moving Average Crossover
The Moving Average Crossover strategy is a linchpin in trend following, renowned for its simplicity and efficacy. This strategy employs two moving averages of different timeframes – a shorter-term average and a longer-term average. The basic premise is that when the shorter-term average crosses above the longer-term average, it signals the commencement of an uptrend, suggesting a buying opportunity. Conversely, when the shorter-term average crosses below the longer-term average, it indicates the onset of a downtrend, signaling a potential selling or shorting opportunity. This method exemplifies the trend follower’s creed of responding to what the market is doing, rather than attempting to predict future movements.
Breakout Trading
Breakout trading is a dynamic strategy that focuses on identifying and capitalizing on significant price movements that breach predefined resistance or support levels. A breakout typically indicates a strong momentum in the market, suggesting a potential continuation of the trend. Traders implementing this strategy place trades when the price moves beyond a certain threshold – a high or low that the asset has not surpassed in a significant period. The effectiveness of breakout trading lies in its ability to capture the early stages of a trend, thus maximizing the potential for profit.
Donchian Channels
Developed by Richard Donchian, the Donchian Channels strategy is a trend-following approach that utilizes a channel created by the highest high and the lowest low of an asset over a set number of periods. The channel consists of three lines – the upper line, the lower line, and the middle line, which is the average of the two. A typical application of this strategy involves initiating a buy position when the price breaks above the upper channel line, indicating an uptrend, and a sell position when it breaks below the lower channel line, indicating a downtrend. This strategy provides a clear, visual representation of the market’s volatility and trend direction.
Parabolic SAR
The Parabolic SAR (Stop and Reverse) strategy, devised by J. Welles Wilder Jr., is designed to determine the direction of an asset’s momentum and pinpoint potential reversals. The system places dots on a chart that indicate potential stop and reverse points, hence the name ‘SAR’. In an uptrend, the dots are below the price bars and move upwards, signaling bullish momentum. Conversely, in a downtrend, the dots are above the price bars and move downwards. The Parabolic SAR is particularly effective in markets with a strong trend, offering clear signals for entry and exit points.
elative Strength Index (RSI) in Trend Following
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements, typically over a 14-day period. In the context of trend following, the RSI can be used to identify overbought or oversold conditions. An RSI reading above 70 is typically considered overbought, while a reading below 30 is considered oversold. However, in trend following, these traditional thresholds can be adjusted to align with the prevailing market trend. For instance, in a strong uptrend, an RSI level of 70 may not necessarily indicate an imminent reversal, but rather the strength of the ongoing trend.
In conclusion, these trend following strategies offer a spectrum of tools for traders to harness market trends effectively. Each strategy, with its unique characteristics and methodologies, contributes to the nuanced art of trend following. The judicious application of these strategies, combined with a rigorous risk management framework, forms the bedrock of successful trend following in the volatile realm of financial markets.
Technical Analysis Tools for Trend Following
In the domain of trend following, the utilization of technical analysis tools is indispensable. These tools provide the means to decipher market psychology, gauge momentum, and identify potential entry and exit points. Among the plethora of technical instruments available, certain tools stand out for their efficacy in trend-following contexts: Candlestick Patterns, Fibonacci Retracement Levels, MACD (Moving Average Convergence Divergence), and Bollinger Bands. Each of these tools offers unique insights into market dynamics, and when used synergistically, they can significantly enhance a trader’s ability to follow and capitalize on market trends.
Candlestick Patterns
Candlestick patterns, originating from Japan, are a form of financial chart representation that offers an in-depth view of price movements. Each candlestick provides visual cues about the opening, high, low, and closing prices of an asset within a specific timeframe. In the context of trend following, certain candlestick patterns serve as harbingers of potential trend reversals or continuations. For example, a ‘Bullish Engulfing’ pattern may indicate a forthcoming uptrend, while a ‘Bearish Engulfing’ pattern could signal an impending downtrend. Mastery of candlestick patterns allows traders to interpret market sentiment and make informed decisions based on the emotional state of the market participants.
Seasoned investors often approach markets with a long-term view, using short- and medium-term volatility to buy into the themes they believe will profit over many years. While identifying these trends is difficult, tuning out the noise can help you focus your portfolio on the winners, possibly resulting in significant gains.
Here are five of the most popular trends right now — including several themes showing significant growth potential in 2025.
1. Cryptocurrency
After smashing records with the successful launch of the first spot Bitcoin ETFs in 2024, the crypto market has entered a new era. Many institutional investors, hedge funds and investment advisors have dived into crypto ETFs, and this growing adoption is poised to create steady, long-term demand for digital assets.
Looking ahead, the spotlight is shifting to the potential approval of spot ETFs for tokens like XRP, Solana, Litecoin, and Hedera in the U.S. However, cryptocurrency exchange Coinbase predicts that institutional demand will likely remain concentrated on a few ETFs, such as Bitcoin and Ethereum, in the near term.
This year could bring even more changes to the crypto ETF landscape. With a new appointee selected to run the Securities and Exchange Commission (SEC), there have been rumblings of introducing staking, which could boost rewards for ETF holders, making these products even more appealing to investors.
Meanwhile, after years of regulatory uncertainty, the U.S. is welcoming its most crypto-friendly Congress ever. With bipartisan, pro-crypto majorities in both the House and Senate, Coinbase anticipates that favorable regulations could fuel crypto’s momentum in 2025.
Despite these tailwinds, cryptocurrency remains a risky asset class, and experts recommend allocating no more than 5 to 10 percent of your portfolio to it.
2. Energy stocks and ETFs
Artificial intelligence has been the stock market’s darling for over two years, with companies like Nvidia and Broadcom delivering explosive growth and massive returns for investors. But while AI grabs the headlines, powering this technological revolution is an equally compelling investment story.
JPMorgan predicts that companies in the industrial and utilities sectors — those supplying the physical infrastructure and energy needed for AI — are poised for significant growth. As AI’s demand for power continues into 2025, these sectors may offer long-term opportunities for investors seeking exposure to the AI-driven economy.
For investors eager to tap into this growth, broad infrastructure funds and power generation companies — along with the best-performing energy stocks and energy ETFs — may be strategic plays to consider as the energy sector powers up for the next phase of AI expansion.
3. Small-cap stocks
High-profile large-cap tech stocks such as Nvidia and Microsoft got all the attention in 2023 and 2024, helping to drive the Nasdaq and S&P 500 indexes to new all-time highs. While investors scrambled to own these momentum stocks, they mostly shunned small-cap stocks, leading to lackluster performance from these smaller companies.
Now with more attractive relative valuations, small-cap stocks have caught investors’ interest again. Some of the best small-cap stocks offer high growth and attractive markets, even if they don’t have the deep pockets and established markets of the large caps. So investors are again looking into these lesser-known names for opportunity.
Investing in individual small caps requires a long-term perspective and a lot of research to understand the industry and the opportunity. Plus, small caps tend to be riskier than larger companies because they just don’t have the same level of resources. So investors looking to ride the small-cap wave may be well served by buying some of the best small-cap ETFs instead.
4. REITs
While interest rates remain elevated for now, investors are anticipating them to decline in the year ahead. And this means that sectors that have been hurt by higher rates, such as real estate investment trusts (REITs), may be poised for a rebound in the year ahead as rates fall.
REITs offer the ability to own real estate without all the headaches of actually managing it yourself. REITs enjoy significant tax advantages, most notably the ability to avoid tax at the corporate level in exchange for paying out most of their income as dividends. So REITs often offer among the highest dividends of any industry.
Publicly traded REITs are among the best types of REITs to invest in, because they offer high yields, low overall management costs and the scrutiny of public investors. As mentioned, with interest rates likely to fall in 2025, a key cost for REITs is poised to fall, too.
Heading into 2024, many experts expected interest rates to drop — and they did. The federal funds rate now sits at 4.25 percent, down from its high of 5.25 percent during the first half of 2024. In 2025, more rate cuts are likely on the horizon.
While cash can be a safe haven and even a solid income source in a high-interest-rate environment, its appeal dims as rates fall.
As cash and Treasury bill yields decline, many investors will seek new income streams. One opportunity in 2025 that can still provide income is dividend-paying stocks.
These equities, often trading at a discount to the broader market, also tend to be less volatile — exhibiting about 80 percent of the market’s overall volatility, according to JPMorgan. That makes dividend stocks and dividend ETFs a compelling option for investors aiming to balance risk and reward.
Cash remains essential for daily needs, but it’s not built to outpace inflation or generate long-term growth. For that, stocks shine. Low-cost index funds are an easy way for investors to gain exposure to stocks of the country’s largest companies.
In economic uncertainty, smart investors look for assets that provide stability and long-term security. While stocks and real estate can be unpredictable, gold is a trusted safe-haven investment that holds value through market shifts.
With inflation rising and financial markets fluctuating, gold offers unique advantages that protect and grow wealth. From hedging against inflation to diversifying portfolios, gold remains a key asset for investors looking to safeguard their future.
Here are six major perks of gold as a safe-haven investment and why it continues to be a smart choice for building financial security.
You Might Like
Invest with zero commissions! Start small with just $1 and diversify across stocks, bonds, ETFs, crypto, and art using this popular app – sign up today.
Waiting on retirement? Every year costs you. Start today with matched contributions and watch your money grow! Sign up for a SoFi IRA and take advantage of compounding interest so you can retire comfortably. The longer you wait, the less you’ll earn.
Going somewhere? As soon as you’ve made your reservations for flights and hotels, do this.
1. Gold Preserves Wealth During Economic Downturns
Unlike stocks and real estate, gold is not tied to the performance of the economy. During recessions or financial crises, investors flock to gold because it retains its value when other assets decline. This makes it an excellent hedge against market volatility and a reliable way to preserve wealth in uncertain times.
Because gold tends to move independently of stocks and bonds, it can help stabilize your portfolio during economic downturns. This makes it a safe-haven asset, offering protection when traditional investments struggle. By allocating a portion of your portfolio to gold, you create a built-in safeguard that helps maintain long-term financial security. Gold’s historical track record of maintaining value makes it an attractive option for those looking to diversify beyond traditional stocks and bonds.
Pro Tip: If you’re looking to protect your retirement savings from market swings, diversifying with gold can offer long-term stability. Precious metals have served as a hedge against inflation and economic downturns for centuries. Explore diversification options like precious metals investments, with opportunities to receive up to $15,000 in free metals through qualified purchases. If you’re over 50 and curious about investing in gold, now is a great time to get your FREE 2025 Gold Information Kit and protect your future with physical precious metals!
2. Gold Protects Against Inflation
Inflation erodes the purchasing power of cash, but gold historically increases in value when the cost of living rises. Unlike paper currency, gold has intrinsic value, meaning it holds its worth even as fiat money weakens. This makes it a powerful tool for long-term financial security.
As a hedge against inflation, gold helps preserve your wealth by maintaining its purchasing power even when traditional currencies lose value.
Quick Tip: Consider adding physical gold or gold-backed assets to your portfolio to counterbalance inflation risks.
3. Gold Provides Portfolio Diversification
A well-diversified investment strategy helps reduce risk and stabilize returns, and gold is a key asset for diversification. Since gold often moves opposite to stocks and bonds, it can help balance your portfolio and minimize overall losses during market downturns.
Diversifying your portfolio with gold helps balance risk by ensuring your wealth isn’t solely dependent on the stock market or other volatile assets. Working with a trusted gold investment provider ensures you’re getting high-quality assets and expert guidance tailored to your financial goals.
Whether you choose physical gold, ETFs, or gold-backed IRAs, partnering with a reputable source can help you make informed decisions and maximize your investment potential. Taking this strategic approach strengthens your financial security, especially during economic downturns. As inflation rises and markets fluctuate, holding gold can provide long-term stability and peace of mind for investors looking to protect their hard-earned wealth.
Pro Tip: A well-diversified retirement portfolio should include assets that hedge against inflation and economic uncertainty. Precious metals have a proven track record of holding value over time. Explore diversification options like precious metals investments, with opportunities to receive up to $10,000 in free metals through qualified purchases. If you’re over 50 and curious about investing in gold, now is a great time to get your FREE 2025 Gold Information Kit and protect your future with physical precious metals!
4. Gold Is a Tangible Asset With No Credit Risk
Unlike stocks, bonds, or even cryptocurrency, gold is a physical asset that you can hold in your hand. It’s not reliant on corporate performance, interest rates, or government policies, making it a low-risk option in times of financial instability. Plus, gold can’t be hacked or erased, providing a sense of security that digital investments lack.
This tangible nature makes gold a trusted store of value, especially during economic uncertainty, when digital and paper assets may face volatility.
Quick Tip: Store physical gold in a secure location, such as a home safe or a professional depository, for added protection.
5. Gold Has Global Demand and Liquidity
Gold is recognized and valued worldwide, making it one of the most liquid investments available. Whether you hold gold bars, coins, or ETFs, you can easily convert it into cash in nearly any country. This global demand ensures that gold remains a valuable asset in any economic climate.
Starting your gold investment with a bonus sign-up offer can give you an instant advantage, adding more value to your portfolio from day one. Choosing investment options like gold-backed ETFs or smaller denomination gold bars makes liquidation easier when you need quick access to cash. By working with a trusted provider, you ensure smooth transactions and the flexibility to sell your gold when market conditions are favorable. Having a diversified approach to gold ownership allows you to adapt to different financial situations, whether you’re preserving wealth for retirement or preparing for unforeseen expenses.
Pro Tip: Gold has long been a go-to asset for investors looking to preserve wealth and maintain liquidity. If you’re over 50, now is a great time to explore precious metals investments and receive up to $15,000 in free metals through qualified purchases. A well-balanced portfolio includes assets that can be easily converted into cash when needed. Get started today with your FREE 2025 Gold Information Kit and protect your future with physical precious metals!
6. Gold Offers Long-Term Stability
Gold has stood the test of time as a reliable asset for centuries, consistently maintaining its purchasing power. While other investments rise and fall with economic cycles, gold has a history of stability and long-term value. Adding gold to your portfolio ensures that part of your wealth remains protected for future generations.
Quick Tip: Consider allocating 5-10% of your investment portfolio to gold to add stability without overexposing yourself to a single asset class.
Strengthen Your Portfolio With Gold
A strong portfolio isn’t just about growth but protection and stability. Gold has proven its worth as a safe-haven asset, helping investors hedge against inflation and market downturns.
While economic conditions change, gold remains a reliable way to preserve wealth. Adding gold to your portfolio creates a financial cushion that withstands uncertainty and strengthens your long-term financial security.
Now is the time to explore gold as a strategic investment. When the economy fluctuates, stability matters more than ever.
Few investors neatly conform to a single description. As with heritage, most people have blended traits. (Although not all: My wife’s ancestry report reads “99.6% Eastern European.â€) But there’s no question that personalities affect investment behavior. This article outlines the strengths and weaknesses of the three prevailing mindsets.
Loners
Investors who belong to this group make their own decisions. They consume investment research neither for its counsel, nor to learn what others are doing, but instead as grist for the mill. Such investors ignore the actions of the crowd. Should they see a line snaking around a block, they will not try to learn what they are missing. They will instead go on their way while pitying the line’s occupants.
Strengths:
1) Buying Low
Loners are not the only investors who try to buy low. Stock mutual funds sometimes receive inflows after market declines because the overall marketplace believes that the dip presents a buying opportunity. Overall, though, loners are the likeliest investor type to sift among discounted securities, seeking bargains.
2) Early-Bird Gains
Besides receiving “dead cat bounces†from securities that are deeply depressed, loners may also profit from the opposite form of investment: highly expensive emerging-growth stocks. Before Tesla TSLAwas mainstream, it was owned mainly by iconoclasts who discovered its story. The same holds for all winning startups.
Weaknesses:
1) Self-Delusion
Unfortunately, not all that glitters is gold. For each dollar they stashed in Tesla or bitcoin, loners squandered thousands on investment dreams that never materialized. Sometimes, wisdom does in fact lurk within the crowd. Loners constantly face the possibility their “insight†is instead self-delusion—the mistaken impression that they have spotted what others missed.
2) Bear Traps
A related problem is bear traps. This error has happily become less frequent, because market-timing has become unpopular, but loners nevertheless tend to exit the stock market, believing they have identified an upcoming bear. (A little knowledge can be a dangerous thing.) Once out of equities, they have trouble getting back in, because doing so before stock prices collapse would be a tacit admission of failure. Loners do not always benefit from having large egos.
Followers
More common than loners are followers, who derive comfort from crowds. Rather than walk past lines, they join them. Followers are strongly influenced by recommendations—from researchers, the media, friends and family, and internet boards. They seek investment allies.
Strengths:
1) Staying Informed
Followers listen to others. Doing so helps to keep them knowledgeable about investments, thereby reducing the chance of an unpleasant surprise. As with inflation, which causes the most damage when it is unanticipated, unforeseen investment losses carry the sharpest sting. Followers who listen to both side of the investment debates—which, it must be confessed, does not always occur—are well prepared for bad news.
2) Trading Opportunities
By the time that followers learn of an investment possibility, the loners have already found it. Word takes time to spread. Astute followers, however, may still reap ample profits by arriving before the rest of the marketplace. Discovering Tesla in winter 2020 was too late. But buying the stock two years before, when it was well known but not yet the investment rage, would have been a splendid trade.
Weaknesses:
1) Tail Chasing
A fine line separates being guided by the collective from being controlled by it. Those who appropriately use investment information, by applying common sense and at least a modicum of their own judgments, can prosper. Not so those who become bewildered by the investment gossip, turned this way and that, like dogs distracted by a fluffle of rabbits. Such is the constant danger for followers.
2) Mob Mentality
Followers are the most prone to being harmed by their emotions. As anybody who has participated in internet forums can attest, chat groups can quickly become mobs. (Whenever I receive an openly insulting email, I know that my column has been posted on a Reddit board.) Investors may benefit from hearing additional views, but rarely will they succeed by sharing others’ emotions.
Zombies
Most investors are zombies. The less they know about their portfolios, the happier they are. Consequently, they tune out the noise. Back in the day, that meant owning a portfolio that had been assembled by a stockbroker, and then leaving future decisions in the broker’s hands. These days, zombies are typically 401(k) participants or index-fund proponents. Either way, they stand aside.
In the 1990s, many investment experts speculated that when the long-awaited bear market finally arrived, 401(k) participants would be the first to sell, given their inexperience. They were instead the last. During the technology stock crash of 2000-02, 401(k) assets were more stable than either retail investors’ taxable accounts, or the portfolios run by professional managers. There is an advantage to lacking an investment brain.
Weaknesses:
1) Missing Out
Although zombies will neither become ensnared by bear traps nor chase their performance tails, neither will they spot investment opportunities. To return to our previous example, some people bought Tesla before the company joined the S&P 500 in late 2020. They might have been loners, or they might have been among the earlier followers. But they assuredly were not zombies.
2) Structural Changes
Over the long haul, the markets are very stable. Roughly speaking, bond yields increased for 30 years, from 1950 through 1980, before subsiding over the next three decades. That made for one inflection point during the Depression generation’s investment lifetime. The long-run performance of equities has been equally predictable. Thus, structural changes rarely leave zombies behind. When such shifts do occur, though, zombies are the last investment type to know.
Dolly Khanna is not your average investor, but she has managed to become a multi-millionaire literally without even lifting a finger.
No, we are not leading you down any random rabbit hole. Mrs. Khanna is a senior citizen home maker, whose portfolio is managed by her IIT Madras educated businessman husband Rajiv Khanna. Mr. Khanna, who began investing in the stock markets only in his 50s, has managed to get multibagger returns of the sort that some of the most established investors can only dream of.
The Khannas owned the famous ice cream brand Kwality Milk Foods, which they sold to Hindustan Unilever in 1995. It was only around 1996-97 that the now 77-year-old Mr. Khanna entered the market, albeit not directly but via his wife’s brokerage account.
To be sure, the Chennai-based Punjabi husband and wife remain low-key and rarely do they talk openly about their investment thesis. But if we look at the publicly available information on their stock market portfolio, there’s enough that we can glean from it.
How much are the Khannas worth?
The Khannas prefer buying shares in stocks that are not that popular, but ones that typically go on to perform very well in the markets.
Over the last few years though, they seem to have reduced their exposure to the direct stock market and seem to have moved their money either into mutual funds or other asset classes.
Public data shows that as of the end of September 2024, Dolly Khanna owns stakes of 1% or higher in 17 stocks, with a cumulative market value of more than Rs. 505 crore. But this does not include those counters in which she holds less than 1%, so the actual value of her stock holdings could be much higher.
Market sources, in fact, put the value of the Khannas’ total corpus at a much higher Rs. 1000 crore or even more.
But the value of their corpus is hardly the point. What matters is, how they got here.
The Dolly (Rajiv) Khanna school of investing
One of Rajiv Khanna’s first successes was real estate company Unitech Ltd in which he invested Rs. 5 lakh in 2003 and harvested Rs 25 crore from the share, in a matter of just around four years.
The Khannas seem to have a simple investment philosophy. They want to capture growth opportunities in the small and midcap segments.
They have managed to make big money on small caps like Nilkamal, Rain Industries, Avanti Feeds, Pondy Oxides, Monte Carlo, Simran Farms, Deepak Spinners, Control Print, Som Distilleries, Talbros Auto, Prakash Pipes and Nitin Spinners, just to name some.
Some of the other small caps that they have been invested in, include Asahi Songwon, Butterfly Gandhimathi, J Kumar infraprojects, Polyplex Corp, Shemaroo, Sharda Cropchem, Goa Carbons, Sharda Cropchem, Zuari Industries, Rama Phosphates, Indo Tech, Ajanta Soya and Aries Agro.
The Khanna portfolio shows that not only are they looking for undervaluation but also for companies that can grow their sales and profits quickly. They are typically eyeing a 15% of higher topline and bottomline growth, along with robust future growth prospects.
But this is not all. What is perhaps even more important is the type of companies the Khannas prefer investing in. They typically do not invest in banks and financial services, technology or government owned companies. Instead, they focus on textiles, chemicals, rubber, automotive and manufacturing companies in their portfolio. They seem to give a higher priority to companies that deal in products and services that they can see being used around them.
For instance, Mr. Khanna, invested in Unitech when he was looking around to buy a house in the Delhi-NCR region. He invested in a company called Manjushree Technopack when he was on the lookout for a bottle manufacturer for his food business. He stumbled upon Hawkins since the company’s cookers were used at home and he bought into Femcare when he saw his daughter use their cosmetic products.
As journalist Shankar Nath noted in a YouTube vlog last year, the Khannas’ preference for such B2C companies comes from the fact that he himself owned an FMCG business and has had a knack for finding good quality businesses in similar customer-oriented segments.
The Khannas know when to get out of a stock
What often defines a good investor is such people know when to exit an investment and cash out at the right time. The Khannas have done this several times including when they sold their holdings in the IT segment before the dot com bubble burst in 2000 and exiting Unitech before it went bust in the wake of the global financial crisis of 2008.
The Khannas have in fact parted ways with stocks that had a high allocation in their portfolios when they began underperforming. Examples include Rain Industries, Manappuram Finance and Gujarat Narmada Valley Fertilisers and Chemicals.
But they also have made some mistakes like exiting many of their positions in the wake of the lockdown of 2020 following the Covid pandemic.
Another important aspect of their investment process is that the Khannas use public data to make their decisions on big-ticket bets. Journalists like Nath say that the Khannas are reticent and rarely meet the managements of the companies they want to invest in or analysts tracking them. They also do not seem to conduct any scuttlebutt investigations or for that matter get into complex calculations. Although since they are so reticent, we can never be sure about this. Rajiv Khanna does however track charting strategies like the 30-day moving averages to track stock prices and exits his positions if the stock goes below his 30 DMA. He uses this as a filter of sorts to predict a calamity as far as the stock goes, exit it, and re-enter the position when the event has passed.
This also means that he does not steadfastly hold on to the maxim of buy and hold for good.
So, should you clone Dolly Khanna’s investment style and gain HNI status?
The honest truth is we cannot recommend either way. While the strategy of backing mid and small caps and generating multibagger returns from them has worked for the Khannas and at least three dozen other well-known investors, do remember that this is a risky strategy and that returns can often be middling or even negative for long stretches of time, depending on how well the small and midcap universe is doing.
But what you can do is learn how they strategise and adapt similar techniques to suit your risk profile.
Here is what their investing style tells us:
The Khannas focus on finding multibagger opportunities rather than just investing in index stocks or diversified mutual funds or index funds. Â
The Khannas find multibagger opportunities in the small and microcap space which is why their portfolio is focused on these counters
They do however tend to diversify their portfolio across sectors and industriesÂ
They invest using indepth research and fundamental analysis with an emphasis on growth and profitability
They tend to target a sales growth of 15%, profit growth of 20% and an ROCE of 15% and buy companies with a high promoter shareholding of 50% or more. They also look at an interest coverage ratio which is comfortable at less than 4 and a price to sales ratio of less than 1.Â
They also seem to regularly review and adjust their portfolio and improve upon their investment framework. Â Â
Stories abound of investors who have amassed wealth through meticulous strategy, keen analysis, and extensive research. These financial wizards have unlocked the secrets to navigating the market’s complexities for remarkable success.
However, emulating their triumphs is no small feat for average investors—it demands extraordinary perseverance and an understanding that each path to success is distinct.
Investing is akin to traversing a labyrinth with its unforeseen challenges; it involves not just ambition but also enduring commitment and the insight that everyone’s journey is individual.
However, attempting to directly mirror the portfolios of these financial legends is a strategy filled with hidden risks.
The Risks of Imitating Investment Gurus
In today’s digital age, numerous online personalities openly share their investment choices on platforms like X (formerly known as Twitter), Instagram, and YouTube.
Television business news channels often feature ‘stockpickers’ who are revered by anchors and viewers alike.
However, attempting to replicate the trades of such ‘experts’ can lead to significant losses, especially when these role models shift from conservative strategies to more controversial positions.
What works for one investor might not yield the same results for another.
Financial freedom, though seemingly elusive, can be more attainable with an open-minded and persistent approach.
The Evolution from Harshad Mehta to Digital Investing
The investment landscape has undergone a dramatic transformation from the era of Harshad Mehta to today’s world dominated by online trading apps.
While Mehta’s shenanigans led to the advent of electronic trading in India, today’s landscape is significantly different.
In the past, investment tips and strategies were exchanged in informal settings like bars, trains, and social events.
Now, digital platforms have emerged as the new arenas for sharing financial information, altering the way we seek and follow investment advice.
Despite these changes, one principle remains constant: successful investing demands a personalized approach rather than mere imitation.
Balancing Risk and Reward in Asset Allocation
Many market-related websites feature stock screeners with labels like ‘Super Investors’ and ‘Guru’, focusing on stocks owned by prominent investors.
Cloning the portfolios of these successful investors might seem like a quick path to wealth, but this approach overlooks essential differences in financial goals, investment opportunities, and risk tolerance.
For example, large investors often have the advantage of investing substantial sums over extended periods, a luxury not shared by many retail investors.
Adopting Intelligent Investment Practices for Personal Finance
Embracing smart investment strategies requires a deep personal reflection on your financial goals and crafting a plan that aligns with your unique situation, rather than blindly following the successes of others.
It emphasises patience as crucial in navigating the market’s volatility and underscores the importance of diligent research across various assets to make informed decisions.
Effective risk management through diversification and disciplined investing, like rupee-cost averaging, is vital for mitigating losses and steadily building wealth over time.
Ultimately, adopting these tailored principles enables individuals to become wise managers of their finances, focusing on long-term achievements instead of short-lived trends or external influences.
The Importance of Diversification in Investment Strategies
You may find it profitable to emulate the portfolio of successful investors, but prudence lies in diversifying your portfolio.
Diversification involves spreading investments across various asset classes, such as stocks, bonds, real estate, and commodities to minimise risk and promote steady returns.
It works on the principle of balancing losses in one area with gains in another to ensure more consistent portfolio performance over time.
While renowned investors successfully employ this tactic by navigating different market conditions, retail investors face challenges like limited capital and lack of expertise required for managing diversified portfolios effectively.
Crafting a Unique Investment Strategy Inspired by Experts
Aspiring investors should take inspiration from the success stories of market experts but tailor their strategies to suit their risk profiles and financial goals.
This involves thoroughly understanding your financial situation, staying informed about market trends, and making investments based on this knowledge.
Becoming a savvy investor is not about blindly following others.
Learning from the best in the field of investing is valuable, but it’s crucial not to mimic their actions blindly.
Intelligent investing is not about emulating someone else’s strategy.
It’s all about picking up tricks from the big players, you know? Crafting your personal strategy for investing that fits just right with how much risk you can stomach. You’ve got to factor in your financial goals and time frame too.
You are not simply mimicking but building a game plan tailored to your needs.
Think of it as learning chess moves from grandmasters and then adapting them to your own risk comfort level.
Remember, it’s about understanding and embracing the rhythm of the market dance while staying true to yourself – recognising when to be bold and when it makes more sense just holding on tight!
Financial advisors face myriad difficulties each day. To succeed, they must combine the skills of asset managers, financial planners, psychologists, and marketers. While most advisors can wear some of these hats well, managing several roles is very difficult, especially if switching from one role to another during a single advising session.
Stephanie McCullough, founder and a financial planner at Sofia Financial in Berwyn, Pennsylvania, said many challenges advisors face come from many misunderstanding their role in financial matters. “The general public is very confused, with good reason, about what we do and who we serve. They are not aware of the many different service models that exist,” she told Investopedia. “It’s still a common assumption that someone needs millions of dollars of investable assets to get the help of a financial advisor.”
Meanwhile, many advisors are working with far less help than in the past. “We used to have a whole back office that took days to enter trades and allocate them within client accounts. Now, one advisor does the job,” said Crystal McKeon, a certified financial planner and chief compliance officer at TSA Wealth Management in Houston, Texas.
Here are some of the biggest challenges financial advisors face in their efforts to grow their business and promote their brand to the public.
Managing Client Expectations
This is an area where advisors need to understand client psychology to succeed. While managing a client’s portfolio might be pretty straightforward, handling their expectations can be more complex. Many clients are unrealistic about investment returns and interest rates.
For starters, clients are often not financial professionals. They are unaware of global markets outside of the headlines they see, how investments work, how macroeconomic conditions may impact certain asset classes over others, why markets may be volatile, and how long investments may take to succeed. In addition, every client has biases, preferences, fears, and expectations. Clients may perceive what they think may happen based on what has happened before.
For example, Bitcoin might have increased more than tenfold from 2019 to 2021, but the asset class will continue to be volatile and may see similarly large declines.
It’s up to the financial advisor to guide them and educate their clients while providing investment advice.1
“For the most part, talking to clients about market volatility during actual times of market volatility is too little, too late,” David Flores Wilson, a certified financial planner at Sincerus Advisory in New York City, told Investopedia. “A better approach is to talk about likely future market volatility when they are first engaged as clients. During [periods of market volatility], we illustrate based on their risk tolerance what they could expect in terms of potential downside in the future.”
Advisors can also show their clients how value increases through investing. One way to do so is by helping clients maintain a long-term perspective in their investing so they don’t go off track with every movement in the market. Clients who can begin to see how their advisor keeps them on track will likely remain loyal to them.
“Educating clients by creating realistic expectations and planning for market drawdowns should be embedded in portfolio management,” said Neil R. Waxman, managing director of Capital Advisors in Shaker Heights, Ohio. “There is only one certainty: investment values will go up and investment values will go down.”
https://datawrapper.dwcdn.net/Sn2gs/1
Staying in Touch
Advisors have more ways than ever to stay in close contact with their clients, but many don’t when things are going well. A constant flow of communication is necessary to maintain a solid relationship with most clients, regardless of what the markets are doing. Advisors can use Zoom and text messaging to keep in touch with tech-savvy clients. Once a market heads downward, being in touch is even more essential.
“During tough market times, it’s all about communication,” Alyson Claire Basso, managing principal of Hayden Wealth Management in Middleton, Massachusetts, told Investopedia. “It’s not just about whether they’re making money or not, but how well you’re keeping them in the loop.”
She said that research backs up her view that clients don’t necessarily leave advisors because of losses but because of a lack of communication.
“It’s crucial to stay in touch, be transparent, and manage expectations, especially when things get rocky. By being there for clients, listening to their concerns, and keeping them informed, we build trust and loyalty, even when the market is unpredictable.”
Negative news is never fun to share, but being transparent, empathetic, and supportive is a must.
Managing Information
Financial advisors always face an overwhelming flood of information. However, successful advisors understand that the key is not to react to every piece of news but to focus on client behavior and long-term strategies. Advisors must guide their clients toward reliable, time-tested sources of information to prevent misunderstandings and avoid decisions based on misinformation.
The breadth of information that advisors must manage is vast and includes the following:
Clients. Advisors must stay attuned to changes in their clients’ lives, goals, and financial circumstances. This awareness allows them to continually adjust and develop road maps tailored to each client’s evolving aims and needs.
Regulations. Staying informed about changing rules in the financial industry is critical. This knowledge is often essential for maintaining the licenses required to handle specific securities.
Economic trends. While macroeconomic conditions are beyond an advisor’s control, understanding global economic circumstances is crucial as they significantly impact portfolio performance. Advisors need to anticipate how worldwide shifts might affect their clients’ investments.
Political developments. Government actions (or inaction) can have broad financial implications for investors. Advisors must stay informed about legislation to position their clients favorably.
Taxes. Changes in tax policies often directly affect investment strategies. Advisors need to be vigilant about shifts in capital gains tax rates, tax brackets, credits, and the treatment of various investment types, including alternative and foreign assets, as these can significantly alter a client’s portfolio trajectory.
By effectively managing this diverse range of information, advisors can provide their clients with more valuable, timely, and comprehensive guidance.
https://datawrapper.dwcdn.net/slzq7/4
Emotional Engagement
Many financial advisors are very analytical. Professional certifications are often data-driven and require abundant skills in quantitative reasoning. However, many client decisions are based on emotion. Advisors need to be able to relate to their clients on an emotional level to maintain a working relationship.
“Money is an extremely emotional and personal topic,” said Valerie R. Leonard, CEO and financial advisor at EverThrive Financial Group in Birmingham, Alabama. “This adds to the emotional vulnerability that clients can feel when talking about their past or present relationships with money. If clients don’t believe they can trust you to be transparent or keep their conversations and financial details confidential, they will never do business with you. It’s really that simple.”
Your engagement with clients, of course, has many forms. For instance, suppose a client’s portfolio isn’t doing well. Your engagement likely includes considering the following:
When to tell the client
How often to check in with the client
How to tell the client (i.e., do they prefer blunt language or a soft landing?)
Where to tell them (i.e., is an electronic message most appropriate?)
Preparing for how they will likely react
Financial advisors are bound by legal and ethical standards. As such, they must represent their clients to the best of their abilities and disclose any conflicts of interest.
Group Support
Independent financial advisors may often feel alone in their practices and have little in the way of planning support. Advisors who struggle with this can find support in organizations such as the Financial Planning Association (FPA), the National Association of Insurance and Financial Advisors, or the National Association of Personal Financial Advisors.
These groups have a wealth of resources in marketing, sales, and practice management to help make your professional life easier.
“When you’re joining a professional association, you’re looking for education, you’re looking for resources, you’re looking for peers to connect with,” said Peter Lazaroff, an Investopedia top-10 financial advisor, who noted he’s partial to the FPA, though he also belongs to other organizations.
How Do Financial Advisors Manage Client Expectations?
Managing expectations is a very socially driven, psychological issue that requires empathy, communication, and education. Clients often do not have the knowledge or expertise that their advisor has, and each client experiences different emotions about changes to their portfolio. Financial advisors must understand that their perspective is different from their clients, and bridging that gap is the responsibility of the advisor.
How Much Do Financial Advisors Make?
The median annual income nationwide for a personal financial advisor is $99,580 per year as of mid-2023, according to the last Bureau of Labor Statistics (BLS) estimate. The median hourly wage for professionals in the field at $47.88 per hour.2
Which Financial Advisor Professional Association Should I Join?
Each financial advising-related association has a focus. When deciding which to join, research them to ensure they have the kinds of services and networking opportunities you’re looking for.
Financial advisor Peter Lazaroff said that some associations offer free services to members that can be instrumental in your business. He mentioned that continuing education and even media training are crucial things some organizations offer that modern financial advisors can’t do without.
“Join a professional association that has continuing education, other resources to support your practice’s growth or your growth, and peer networking opportunities—those are what’s crucial to me,” he said.
The Bottom Line
It’s important for advisors to understand where their clients are coming from and make them understand the value that they offer. Those who can successfully manage their clients’ expectations can improve retention and their bottom lines. The pressure to stay ahead of technological advances, maintain a competitive edge in a crowded market, and meet the increasingly sophisticated demands of clients requires advisors to be not just financial experts, but also empathetic communicators and strategic business managers.
The most critical challenge, however, lies in building and maintaining trust with clients in an era of economic uncertainty and heightened scrutiny. Successful advisors will be those who can effectively balance the technical aspects of financial management with the human elements of relationship-building and clear communication. Joining a professional association can provide additional support.
