October is the scariest month of the year – and for good reason. Most people associate October’s scare factor with Halloween – ghosts, goblins and ghouls oh my! But Wall Street plays a factor into October’s scary reputation as well with “The October Effect,” causing investors to fear terrifying investment returns and shy away from the stock market during the month.
What’s so scary about October?
October has a track record with some pretty scary historical market crashes:
- 1929 – October 24th, AKA “The Great Crash,” followed by October 29th, “Black Tuesday,” both led to the most-devastating stock market crash in the history of the U.S. and signaled the beginning of the 12-year Great Depression1
- 1987 – October 19th, AKA “Black Monday,”- the day the Dow Jones Industrial Average plunged almost 23%, its largest one-day percentage-point drop ever1
- 2002 – October 9th, AKA the end of the “dotcom” crash - a series of negative events and corporate-driven news pushed the market to a five-year low2
- 2008 – October of 2008 - the start of the global Great Recession with highlights like “too big to fail,” TARP bailouts and global market collapses despite central bank actions to try and curb it across the world financial markets3
Scary story or investing reality?
Although there is no statistical truth behind the “The October Effect,” the psychological expectation may scare some of your clients away from investing. Here are four ways to help clients overcome their investing fears:
- Avoid making sudden, emotion-based changes to their investing strategy.
- Stay the course.
The market will always go up and down.Help your clients understand the long-term strategy by not getting caught up in the performance of a single month.
- Turn a market correction into an opportunity.
Macro-economics, taxes, and politics are important. But investment professionals also know this is the power of informed, disciplined advice.
- Help grow and protect assets with the value of advice.
Investment professionals cannot alter the inevitable events and market reactions to them. Work to understand your clients’ unique situations and carefully examine their goals. Then, construct a mathematically informed portfolio designed to help grow and protect their assets.
While there is always some risk with investing in the stock market, as “The October Effect” shows, a long-term and comprehensive financial planning strategy that takes into account market fluctuations and volatility, is an important part of any retirement and investment plan. Financial advisors and planners can help take the fear out of investing for clients by helping them see the long-term benefit of planning toward achieving unique financial goals. I ain’t afraid of no markets!