Investor Refresher

In both examples people quickly forgot what it felt like to, in these examples, be afraid of not passing or be down a lot in their portfolio (down a lot is intentionally vague because of the subjective nature of the phrase).

In these instances advisors must themselves remember that these behavioral swings are very normal and they need to be ready to confront them effectively when they arise. One effective way to do this is through preemptive communication like an occasional reminder while equity prices are high that markets will at some point go down again and when markets are down remind them that they have gone down before and then recover. The cycle repeats.

This is of course equally true for investors who manage their own portfolio. They are susceptible to the same emotions and biases as anyone else.

We all have moments where our ability to act completely rationally is impaired, it is part of the human condition, the key is to not let yourself or your clients be done in by a temporary absence of reason.

This article was written by AdvisorShares ETF Strategist Roger Nusbaum.