Recently, advisors in my coaching program have been asking, “How can we deal with the fear and anxiety that our clients are experiencing because of the current market conditions?” It’s a darn good question.
There are no easy answers. Training clients to expect down markets and putting their money in broadly diversified portfolios are great strategies. Unfortunately, they may not be enough. Furthermore, you would have had to employ these strategies long before today for them to be working for you now.
But let’s take a different approach. Instead of looking at the markets, let’s look inside the heads of your clients. Their fear and anxiety is based on their values and beliefs, not just the current market.
American Myths About Money
What Your Peers Are Reading
A while ago an article about a “very successful investment banker” caught my eye. Upon reading the story, I was dismayed to learn that he had been divorced three times, his son was in jail, and his daughter was in rehab. That’s “successful”? Clearly the writer was using a one-dimensional standard–money–to measure success.
Our country was founded in part on the “pursuit of happiness,” but it seems that most Americans believe that money can buy that happiness–or at least that a little more money will make them happier. When a journalist asked Henry Ford how much money the average American needed to be happy, the auto magnate put his thumb and forefinger about one inch apart and said, “About this much more.” In a survey conducted by the University of Michigan in which people were asked what would improve the quality of their life, the majority said, “More money.” And in 1995, 75% of Americans entering college declared that an “essential” or “very important” life goal was “being very well-off financially.” This topped a list of 19 life objectives, exceeding even those of “raising a family” and “helping others in difficulty.”
More, More, More
In 1957, Americans’ per capita income, expressed in today’s dollars, was about $9,000 per year. Today, it has more than doubled. We now have twice as many cars per person, we eat out more often, we have air conditioners, dishwashers, stereo systems, and all sorts of material wealth. But are Americans happier now than we were 45 years ago?
From 1957 to 1996, the proportion of Americans polled at the University of Chicago’s National Opinion Research Center that said they were “very happy” declined slightly from 35% to 30%. Meanwhile, divorces doubled, teen suicide has tripled, arrests for juvenile crimes has increased sixfold, and depression rates are soaring, making Zoloft and Prozac some of the best-selling products in our economy today. What’s wrong with this picture?
In 1968 I went to Turkey on a high school exchange program; recently I traveled to Ecuador, which is considered to be one of the poorest countries in the Western hemisphere. In both cases, the farther I got away from the major cities, the poorer the people were. They had nothing compared to the wealthy folks in the cities. Yet they exhibited a joyfulness that still moves me today. Happiness, it seems, is less a matter of getting what you want than of being satisfied with what you have.
Indeed, a University of Michigan study showed a virtually negligible relationship between happiness and wealth. Even very rich people, those surveyed among Forbes’s 100 wealthiest Americans, are only slightly happier than the average American. And people whose incomes increased over a 10-year period were not happier than those whose incomes had not increased. The survey concluded that “economic growth in affluent countries provides no apparent boost to human morale or happiness.”
Wealth, it turns out, is like health: Although its utter absence can bring misery, possessing it is no guarantee of happiness.
So what if, instead of thinking of yourself as a financial advisor, you thought of yourself as a coach whose role was to help people make appropriate choices with their money and their lives so that they could enjoy more happiness in their lives? I believe that one of the most important issues for financial advisors, particularly in today’s markets, is to help people discover alternatives to material wealth that will help them lead more rewarding lives.
A Psychological Perspective
Dr. Martin E. P. Seligman is the past president of the American Psychological Association (APA) and a founder of a new discipline of psychology called Positive Psychology. His co-conspirator is Mihaly Csikszentmihalyi, the author of two books on happiness. Positive Psychology focuses on the study of positive emotional states and how to achieve them. There are now major research projects going on all over America to scientifically determine what happiness is and how to achieve it. We know what stress can do to people’s health, but we are just starting to discover the benefits of laughter, positive emotional states, the healing power of positive expectations for the future, and goal-focused living.
Let’s look at how you can apply recent psychological research to help clients respond to current market performance.
Limit Clients’ Exposure to “Investment Porn”
Most of the mass media is about bad news. There’s very little good news, because good news doesn’t sell. What sells is drama, conflict, and confrontation. That means the financial media is having a field day pushing people’s hot buttons with constant bad news about the markets.