We’re deep in the woods, and many crystal ball polishers are pining for old times. The most daring are calling for a return to happy days by the end of this year. But those ball gazers are just looking for the next bubble, so they’re best ignored.

Anyone predicating a business model on consumer spending returning to levels seen in recent years is pining for a fantasy. If we learn one thing from the auto industry’s tribulations, it should be that consumers will eventually realize they don’t need three of something when they already have two. With consumer confidence at all-time lows, it’s safe to assume some purchasing reductions will stick around—think back to how long the spending cuts households made starting in 1990 remained in force.

We’re entering a paradox of thrift. Consumers, and the economies they drive, will go through a process of rightsizing that may also take into account the environmental impact of the way goods have been produced, packaged, moved and sold for the past 20 years. Manufacturing companies will therefore have reduced earnings and the resulting stock market returns will be lighter.

If a client bought a home in the past year, that dwelling provides a good example of why he or she should remain invested. A property in negative equity is still a residence and likely can’t be replaced at a rent comparable to the existing mortgage. It’s the same thing with stocks that, while devalued, are still better off kept for the time being. Just as those clients can’t expect the house to rapidly appreciate, they must likewise realize their stock holdings won’t be going up like gangbusters.

For advisors, the objective should be to stay in their clients’ screens during this period when equity is effectively locked away. They can also try offering services à la carte—an annuity for the client who needs some guaranteed income, a TFSA for a client intent on preventing losses, and help with debt management and payoff for those who have gotten in too deep. As you quell one concern after another, you’ll slowly help clients bring their expectations to more reasonable levels.

When the economy does rebound, and clients once again feel flush, they’ll remember the advisors who helped them wrap up their debts and carefully managed their assets through tough times.

 

Originally published in Advisor's Edge