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Portfolio > Mutual Funds

The guilty prospect

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The couple that you saw a year ago is sitting across the table once again. The reason they saw you last May was because their $100,000 mutual fund portfolio had dropped to $90,000 since the first of the year and they were scared. You talked about fixed annuities with them and they agreed with the concept, but they wanted to wait until their portfolio was back to $100,000.

Today their mutual fund portfolio is $60,000, the couple is even more afraid, and yet when you talk about moving to the fixed annuity they tell you they want to wait until the portfolio is back to $100,000 before buying the annuity.

There are a couple of ways you can deal with the situation.

  1. You could tell them: “Don’t be stupid again; buy the annuity” and see how well that works.
  2. Deal with the emotional issues that are blocking the sale.

The couple’s problem with moving today is after they buy the annuity the stock market may go back up. The regret they anticipate feeling by moving to the annuity today, when they might be winners tomorrow, is clouding their judgment. They have established a value in their minds that the mutual fund portfolio is worth $100,000, but that value is an illusion and it needs to be shattered.

Point to Solutions
One solution is to replace fear of future regret with fear of future losses. Remind them that by delaying one year it will cost them $30,000. Ask them, “When we get together next May will you feel happy or sad if you did not move to the annuity today and your mutual funds are then only worth $30,000?” You also need to deal with the guilt they feel.

It’s bad enough to take the financial hit without having your nose rubbed in it. You shouldn’t tell them they were wrong — they know that — you need to tell them they were right. Tell them that based on everything they knew they were right to keep the mutual fund a year ago, but the world has changed and by buying the annuity they can be right again.

Logically a year ago the couple should have bought the annuity, but people’s decisions are influenced by emotions and their potential regret and guilt killed the sale. The same emotions exist today, but by bringing up the possibility of future losses the regret objection is neutralized and by saying they can be right again the annuity becomes a guilt-free solution.


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