When rising markets make clients skittish

When the market’s going down, clients worry it’ll keep falling. But when it’s rising they worry the trend won’t continue. Add volatility and the talking heads on TV, and it’s no wonder they get scared. How do you make the case for getting in or staying in when the market sets new highs?

Read: Doing business with friends

Six arguments

Assume the prospect is a typical investor committing a portion of her assets to the stock market with a long-term time horizon.

#1. Not a Straight Line

“Data show the S&P 500 has delivered a total return around 10% a year on average since the 1920’s. But it doesn’t return 10% every year. It doesn’t move in a straight line like accumulated interest on a savings account. If it did, why would anyone invest in anything paying a lower return? The market goes up like an escalator but down like an elevator. The returns have historically worked out for investors with a long-term time horizon. That’s you. What are we waiting for?”

#2. Missing Appreciation

“The market hit a historic high of 14,164 in October, 2007. It then declined to 6,443 in March 2009 before returning in 2013 to its previous high. The market’s now over 15,000. If it has historically returned 10% a year and you believe it will likely continue doing that long term, ask yourself this question: What about the growth the market should have achieved between 2007 and 2013 when it finally got back to 14,164? It’s likely it’ll need to make up a few of those 10% gains in future years in addition to whatever growth it makes to keep track with the historical average. This makes a good case for being invested in the market now.”

#3. Where Would the Money Go?

“The market set new highs last year. You’re concerned the market will decline? Where will the money go? Professional investors need realistic alternatives before abandoning an asset class. What can they expect in money funds? Corporate or government bonds? Real estate? Large professional investors like pension funds need to be keeping the money at work. Can you see any other attractive alternatives? That makes a good case for staying in the market.”

Read: How to undo fee discounts

#4. Indices are Made of Sectors

“When we talk about the market rising or falling we consider broad averages. These are made of industry specific sectors. The S&P 500 has ten sectors. In 2013 that index rose about 30%. Sectors like healthcare and consumer discretionary rose about 40%. Conversely, in volatile times defensive sectors like utilities have traditionally done well. Here’s what I think we should be doing now….”

#5. Pullback

“One of your concerns is the market’s been setting new highs. If markets are cyclical you don’t want to get in while others are getting out. You’re a long-term investor. One of the best times to buy is when there’s a pullback. Other investors pause and take profits for lots of reasons. If the fundamentals are intact this provides us with a great opportunity to get in. Here’s why I feel the fundamentals are intact. Do you agree? Here’s what I think we should do….”

#6. Dollar Cost Averaging

“You don’t want to get in because you feel the market’s high. If we went back to January 2013 and applied that thinking, we would have missed the 30% move. No one knows what the market will do going forward, but no one said it’s all or nothing either. Why don’t we use the dollar cost averaging strategy? Invest a portion of the money now. If the market continues to rise we’ve established a position. If the market declines you have the opportunity to buy more at a lower price and average down your cost basis. Let’s talk about a comfortable level to start dollar cost averaging….”

Read: Why investors need advisors