Investors are facing numerous obstacles right now—market volatility, health concerns, ruined routines due to stay-at-home orders, to name a few—all of which may make it more difficult to make thoughtful, long-term financial decisions. Luckily, advisors are in the unique position to intervene in investors’ decision-making process and provide techniques to help them avoid falling prey to behavioral biases.
In an earlier post, we outlined a conversation checklist to help advisors navigate tough conversations with clients investing in volatile markets. To accompany that piece, we’ve developed a behavioral guide that further explores pertinent behavioral principles and interventions you can incorporate in your practice today.
A Peek at our Guidance on Investing in Volatile Markets
The first step to effectively using behavioral science to make better decisions is to understand the core principles behind this line of research. Our guide provides a high-level overview of how our minds work, where biases are born, and a few particularly pernicious biases that tend to surface when we’re investing in volatile markets.
Once you understand what these biases are, you may begin to notice when your clients exhibit these behaviors, and therefore be better positioned to combat them. We break down the investing decision-making process into five steps:
- Investments: Selecting and Setting Expectations
- Information: How Much Is too Much?
- Emotion: Understanding our Biases
- Decision: Intervening at the Right Moment
- Action: Setting up Barriers
There are certain biases that investors are prone to—from the moment your client looks at their investments to the moment that they call you wanting to act—and there are tools you can use to help them manage these biases.
At each of these five steps, we describe interventions you can implement based on your client’s current state of mind. If your client is relatively calm and looking to you for guidance, now is the time to prepare for any future investor panic. However, if your client is already feeling anxious about the current market volatility, the guide explains various techniques you can implement throughout the investing process to help your client stay the course.
Helping Investors Work Around Their Biases
The external stressors that investors are currently facing may make them especially vulnerable to these biases, but there are plenty of opportunities for advisors to intervene.
In our guide, we explain why even the most experienced investors may be struggling to manage their emotions right now, and what you can do to help them make more thoughtful decisions.