Behavioral finance and psychology teach us that these kinds of bad behavior are incredibly common, even (and likely worse) when the stakes are much higher. Fear, greed, overconfidence, peer pressure, and keeping up with the Joneses (just to name a few) should not be variables within the decision making equation, yet so often they are.
Application to clients
If you’re reading this, it’s likely that you are a steward over someone else’s investment assets whether it’s for your family, a pension, an endowment, etc. Have you helped them articulate how much is enough with respect to the following?
- Rate of return
- Children’s college
If you haven’t helped clients clearly articulate their goals, you might consider doing so. Carl Richards has made the case that effective advisors serve two key roles:
- Help clients clarify their goals
- Remind clients of their stated goals when they’re about to make a mistake
While those steps are simple in concept, they’re obviously much more difficult to carry out. Don’t overlook their value though.
How much is enough? It’s a question that deserves careful consideration. And with some clients, you might just find that the most value you ever provide is reminding them of their answer to that question.