Five investment lessons to soothe jittery clients

Nick Platt, director at Henwood Court Financial Planning, says now is the time to remind clients of the five lessons underpinning a successful investment strategy.

Recent market falls have caused many investors to recall the dark days of 2008 and the downturn of what some labelled "The Great Recession."

Clients feel daunted, but long-term investors have little to fear, says Platt.

Here are his top five quick-fire investment basics to reassure clients quickly when they need it most:

#1 Markets are Efficient

We may not like the market's reaction to news, but the market is doing its job. Willing buyers and willing sellers go to the market to agree upon a price for each security.

Each price reflects all known information. It is important to understand this one simple point because if you decided to buy or sell now based on what has happened-don't bother, it's already in the price.

#2 Market timing is Speculation

Investors who take action based on what they think will happen next are merely speculating or gambling on a future outcome. Louis Bachelier admonished back in 1900 that the expected return on speculation is zero. When costs are considered, the expected return on speculation turns negative.

Veteran financial consultant Charles Ellis tells us, "Market timing is a wicked idea. Don't try it -ever."

#3 Save yourself from Yourself

Legendary investor Benjamin Graham tells us: "The investor's chief problem - and even his worst enemy - is likely to be himself."

In The Little Book of Behavioral Investing, James Montier tells us, "Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

Realize that the long-term expected return of their investment portfolio has not changed in the wake of the current volatility. Turn off the TV; step away from the computer; go for a walk, instead. They'll be glad they did.

#4 Remember the Bad Times

Few want to recall the angst of 2008 and early 2009, but the important thing is that those who held on came through far better than those who panicked and fled the markets.

The market always carries a positive expected return. You don't always get it, but it is always there. You cannot obtain the positive expected outcome of the market unless you are in the market-buying, holding, bearing and rebalancing risk. We know the drill, we have suffered extreme volatility in the past, and we have endured.

#5 Remember your Time Horizon

If you need the money right now, the stock market is not the right place for you. But, if you have a time horizon of four or more years, you can withstand some volatility to increase your risk-adjusted returns.

If your risk capacity is still where it should be, the hard work is over; you have earned the right to simply invest and relax.