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January 20, 2016 at 12:53 PM
It’s so easy to succeed. It’s so easy to retire in comfort.
You control your own destiny. You needn’t rely on others. You can do it all yourself.
And yet… and yet… we’re told by oh so many smart people there’s a retirement crisis.
Making matters worse, and feeding the fears of the average retirement saver, the market began the year with its largest drop ever.
Are we about to repeat the awful years of 2008-2009? Will 401k participants again panic and quit their long-term investing?
How do we, as professionals, convince them not to let their emotions guide their investment actions?
That’s a subject of great interest among the provider community (see, “3 Rules for Retirement Savers During Falling Markets,” FiduciaryNews.com, January 12, 2016). These folks clearly have been around the block when it comes to market cycles.
It’s like they have special glasses, glasses that can see into the future. When the market goes down, they see a future when the market rises; hence, they seek buying opportunities.
Likewise, when the market goes up, they can sense the inevitable sell-off and search their holdings for selling prospects.
These seasoned veterans have a developed wisdom when it comes to anticipating market moves. And that’s great if all they do is manage their own investments.
The challenge comes when they start managing other people’s money.
Once this threshold is crossed, advisors enter the dominion of behavioral psychology.
They might not have immediately realized this — after all, if they wanted to work in an office with a couch, they would have selected a different major in college.
As we’ve discussed often, we can consider this as the acid test for the fiduciary. The test occurs when a client decides his emotions trump his reason.
