Investor behavior and the “unhappy child”

unhappy baby

I am fortunate to work alongside some truly intelligent people at Russell. Every day, I have the opportunity to read thought leadership on any number of topics, but sometimes it’s the simplest observations from my colleagues that are the most striking.

Recently, while discussing our teenage daughters, a colleague reflected, “You are only as happy as your unhappiest child.” As many parents would agree, the unhappiest child is often the most vocal and the one who might be top-of-mind for an overwhelmed parent.

The truth of this sentiment seems applicable  to investors. How many of your clients seem only as happy as the worst-performing part of their portfolio? How often do your client meetings get derailed by a client’s concern over the short-term performance of one asset class or investment?

And who can really blame investors? After all, there’s always some “friend” at a random cocktail party whose portfolio “is killing the market.” Plus, long-term planning through both the accumulation and decumulation phases just isn’t exciting to most people.  Simply stated, talking about the steady march towards financial stability doesn’t have much sizzle.

But just as we counsel our children that there are no shortcuts in life, there also are no shortcuts to reaching financial goals. The wealth management process requires time, money and planning –without exception.  As an advisor, you can remind clients that while asset classes rise and fall in cycles, this is a normal part of a diversified portfolio. Seldom do these cycles mean clients should make changes to their allocations.  In fact, often today’s laggards may be tomorrow’s shining stars.

The bottom line

Your clients are not teenagers struggling to find their place in the world. However, investors are subject to the cyclical nature of investing and emotions, as well as the behavioral biases that cause some people to focus more on negative experiences than the positive ones.

Sometimes, the best service you can provide to clients is to listen and patiently steer them back to the correct course. Come to think of it – that might work with teenage daughters as well!

RFS 12763
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