High returns don’t always mean an investment closely follows the stock market. Check correlations to set realistic expectations for your clients.
Imagine there is such a thing as a multi-sport team and you are the coach. You’ve worked hard to build a roster of athletes who excel in various areas. Some are star players in basketball, while others dominate in swimming or track. You’ve even developed a balanced game plan to leverage their strengths across competitions.
Now imagine your basketball star goes head-to-head with a professional sprinter in a 100-meter dash. Would you expect them to win just because they’re an incredible athlete? Of course not. It’s not their game.
The Role of Strategy in Performance
Outperformance is about excelling in the right conditions. Some strategies are built for steady growth and resilience during downturns, while others are designed to capitalize on rapid, high-risk opportunities. A diversified approach, like your multi-sport team, means each component has its strengths—and occasionally, its limitations.
For example, in strong, tech-driven markets, strategies like the iQ Nasdaq 10 or iQ Sensitive Super Sector models are designed to thrive. Their focus on sectors and stocks leading the charge in such environments makes them standout performers. However, during rougher market conditions when stocks struggle broadly, an all-asset strategy like the iQ All Assets Risk On Risk Off Rotation model may excel, leveraging its ability to adapt across asset classes and market cycles. The key is that both approaches have their time to shine—they’re just built to excel under different conditions.
Understanding how your strategy aligns (or diverges) with market benchmarks is crucial. It’s the difference between having a game plan for the season versus winging it at every game. Are you relying on small caps to lead the charge? Are you allocating risk-on assets in a volatile environment? Your strategy’s performance will naturally ebb and flow depending on the “game” the market is playing.
Why Clear Communication Matters
Just as you’d explain your coaching strategy to team sponsors or fans, you must set clear expectations with your clients. They need to understand that your approach isn’t about winning every single match—it’s about achieving long-term success. When a client expects their portfolio to outperform in every up-market, frustration can quickly overshadow the brilliance of a well-thought-out strategy.
Use relatable examples to communicate this. For instance, share how diversifying assets is like having a multi-sport team—it ensures strength across various conditions, even if one player or sector underperforms at times.
Setting Expectations for Success
Ultimately, your role as an advisor goes far beyond selecting investments; It’s about guiding your clients through the ups and downs of the market with confidence and proper communication. A key part of this is ensuring they understand how different strategies are designed to perform under various conditions. For instance, a hedge model isn’t likely to deliver stellar results when the very risk it’s designed to protect against is absent or thriving—this is by design, not a flaw.
Remember, it’s not about winning every race—it’s about building a portfolio that can go the distance all season long.