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market spotlight | monthly review

Equities in August saw many peaks and valleys throughout the month, finally rallying at the end of the month. Strong second-quarter gross domestic product (GDP) figures, steady job gains, and increased consumer spending sent stocks higher, despite stagnant inflation and heavy personal and financial losses caused by Hurricane Harvey. The large caps of the S&P 500 and Dow posted marginal monthly gains with the tech-heavy Nasdaq leading the way closing August up 1.27%. The small caps of the Russell 2000 continued to lag, falling 1.39% from its July closing value. The Global Dow inched down 0.32% for the month, but is still strong year-to-date, up over 12.50%. The prices of 10-year Treasuries climbed, sending yields lower.

By the close of trading on August 31, the price of crude oil (WTI) was $47.07 per barrel, down from the July 31 price of $50.18 per barrel. The national average retail regular gasoline price was $2.399 per gallon on August 28, up from the July 31 selling price of $2.352 and $0.162 more than a year ago. The price of gold increased by the end of August, closing at $1,327.20 on the last trading day of the month, up $51.60 from its July 31 price of $1,275.60.

did you know?

Managing client expectations is a cornerstone of building strong relationships. When you work with clients or prospective clients, it’s important to get on the same page. Here are steps you can take to build trust and avoid confusion down the road:

o Educate clients on how products work and how volatility and other forces can impact those investments

o Develop a comprehensive plan together, one that matches the client’s risk tolerance and allows them to reach their investment and retirement goals

o Set realistic expectations for the clients that are focused on “real returns” that factor in volatility rather than annual rate of return

Source: Investopedia

bright ideas

Manage Client Expectations Through the Reality of Returns:

Why Educating Your Clients on the Math of Losses Builds Trust and Long-term Relationships

As an advisor, selling the returns of a portfolio can not only trigger compliance concerns, it can create client relationships that are as turbulent as the market itself. Too often transactions take place based on a product’s performance-or its perceived or potential performance. But what happens when that product doesn’t live up to expectations?

Education is Key

By shifting away from performance and toward client education, you and your clients can feel the calm confidence that comes with understanding the strategy that is going to work. To accomplish this, it is critical to teach the Beacon investment philosophy and communicate the power of losses on real returns.

The Reality of Returns

If you could choose between a 0% cumulative return and a 20% cumulative return, which would you choose? We have asked this question to rooms full of advisors shocked to find out the answer may not be as easy as you think!

Click here to download our newest client appointment tool:

Misleading Numbers and What You Can Do About It.

The rate of return can be completely misleading. As we see in our two investment examples in the client presentation tool above, one has large volatile swings. While it’s up dramatically one year, it nosedives the next. If you present the options to the client, without educating them on the underlying factors of volatility, which one do you think they’ll take?

“Mr. & Mrs. Client, you have two investment options. Option one goes up 10 one year and goes down 10 the next. It’s a zero percent cumulative return. Option two goes up 60 the first year and drops 40 the next for a 20 percent cumulative return. Which would you like to buy?” Presented that way, with a fixation on returns, most clients are going to take that second option. In their minds, they’re up 20 percent. And they’d be wrong. [CC1]

The Math of Losses

From our accompanying chart, we see that option one wound up with $99,000 of the original $100,000 invested, while option two, the option with a 20 percent cumulative return netted only $96,000. How is that possible? It’s due to standard deviation and range. Standard deviation measures the dispersion of a set of data from its mean and sheds light on the historical volatility of that investment. The range is the difference between the low and high prices for a security or index over a specific period. The more volatile the security or index, the wider the range. Your client needs to understand that the volatility of a product can quickly offset its rate of return; after all, it does not take a 30% gain to recover from a 30% loss, it takes 43% just to get back to even!

The Bottom Line

We encourage you to walk through this new client download in your appointments, along with any number of the client education tools available to you on the Advisor Toolbox designed to help you create engaging, impactful and educational conversations about real returns. By building this foundation of education, you can manage expectations and earn a long-term client who trusts the process and philosophy going to work on their behalf. For more information on how you can educate clients on the math of losses and the reality of returns, contact your wholesaler today!

beacon news

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen!

“Create Your Own Portfolio Benchmark”-U.S. News

“Slash Your Retirement Risk interview” -MoneyLife with Chuck Jaffe Podcast



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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