Every advisor has encountered the fearful client. Although he or she sees others profiting from a good asset allocation, the fearful individual wants to keep most, if not all, assets in cash.

“We must address the fears,” says Erika Safran, founder of Safran Wealth Advisors in New York City. She talks with reluctant investors about the bigger picture and their hopes for their portfolios. Ultimately, Safran is firm with those who want to keep everything in cash. “That’s not happening,” she says, noting that zero “isn’t an acceptable rate of return.”

David McPherson, founder of Four Ponds Financial Planning in Falmouth, Mass., takes a similar tack. “First I show them what the downside is to holding too much cash,” he says. With money market funds yielding just 0.01%, even 1% inflation can erode a nest egg. “I think people understand that, but you really have to point it out to them,” McPherson says.

Safran tells clients that they need equity exposure to reach their goals. “One of the best ways to achieve that is to manage their risk by dollar-cost averaging over a given time frame,” she says. After she determines the proper asset allocation, Safran works with the client to establish the time frame. A typical question might be, “Is one year all right with you?”

McPherson tells fearful clients that there will be occasional sharp drops in stock prices and that a good portfolio allocation will address that inevitability. He explains to clients that “everybody needs a cushion in the form of cash and bonds.” The only question is the size of that cushion. McPherson observes that many people view investing as all or nothing. They see only two possibilities: 100% cash or 100% stocks. His job is to educate them that there are many other choices.

Like Safran, McPherson favors dollar-cost averaging, sometimes taking up to two years to accomplish the complete allocation for someone who is afraid to put a lump sum from a home sale or an inheritance to work. He explains to clients that they are moving toward a target, “but we’re not going to get there overnight.”

Safran says that a simple device like dollar-cost averaging can have a “huge impact on the client.” The technique is so familiar to planners that they sometimes don’t realize it is novel to nonprofessionals. “I don’t think that people often consider that as a tool for taking cash off the sidelines and allocating it,” she says.

Joseph Lisanti, a Financial Planning contributing writer in New York, is a former editor-in-chief of Standard & Poor’s weekly investment advisory newsletter, The Outlook.

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