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3 Tips for Helping Clients Achieve Financial Wellness in 2021

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While the last 12 months have been volatile and uncertain on many levels, the relentless roller-coaster ride reinforced an essential truth: As wealth managers, our value lies in our ability to coach, educate and provide a framework for clients to feel confident that their portfolios can withstand any market environment and deliver a safe and comfortable path to retirement.

If you are an advisor seeking a truly diversified approach to capturing market rates of return, it’s essential to consider your clients’ natural biases, utilize sound investing principles and stick to your guns.

Here are three ways to reimagine both your client coaching strategies and portfolio allocations this year, to set clients up for long-term financial success.   

1. Recognize and avoid behavioral biases. 

When constructing portfolios for long-term growth, succumbing to behavioral biases can prompt short-term decisions that deviate from your clients’ financial plans. Three biases in particular to avoid? Herding mentality, recency bias and false patterning bias. 

Herding mentality is, quite simply, following the herd — whether it’s jumping out of the market or chasing a hot new stock because everybody else seems to be. In each case, such behavior can have a detrimental effect on a long-term portfolio. For example, moving to cash after a significant market crash — like what we saw in 2008 and in 2020 — often means missing out on major gains when the market recovers.

Recency bias is remembering more recent events over historic ones. As human beings, our memories are flawed. We tend to better recall market upsides than downsides, and this can hurt an investor’s ability to follow their long-term plan — especially during a bear market. 

Similar to recency bias, where an investor’s take on a certain time period is skewed, is false patterning bias, where investors become trapped in a belief that the same pattern will continue.

For example, after the market dropped last March, many believed it would continue to drop indefinitely. There is no empirical evidence to support the idea that the market follows any sort of pattern.

In hindsight, we can see how wrong it was to think markets would continue to fall, and yet the next time the market drops, the same panic is sure to set in again. It’s human nature, after all.  

2. Don’t be fooled Into stock picking. 

When it comes to allocating to a retirement portfolio, stock picking and timing the market are akin to gambling with your clients’ money. 

A good recipe for a portfolio that can stand for the long term contains a combination of international stocks, U.S. equities and emerging markets — without overallocating to one over the other. It’s also crucial to force yourself to rebalance: Invest in high-quality short-term fixed income and buy equities when they’re low — something easier said than done.

Constructing a portfolio with these elements can help to counteract any behavioral biases you hold, forcing you and your clients to stay in the markets and make investment decisions that are beneficial for long-term success.  

3. Let Nobel-Prize-winning theorists point the way.

Far too many investors lean on emotion and gut feelings when it comes to the markets, which can result in poor financial outcomes. There are three academic principles that advisors and investors can use to guide themselves in a powerful, disciplined and diversified approach to investing: efficient-market hypothesis, modern portfolio theory and the three-factor model.

Together, these free market investing principles propel clients on an educated path to reach their financial goals. Think of it as “investing science” to ensure you don’t get distracted or panic when markets roil. This holds true for any type of market environment — whether it’s a black swan event, volatility, or a bull or bear market. 

To start, according to Eugene Fama, “In an efficient market, at any point in time, the actual price of a security will be a good estimate of its intrinsic value.” Attempting to find undervalued companies or predict when the market will tank will not do investors any favors in the long run.

Through diversifying and utilizing structured funds, and not making rash decisions based on headlines (which seem to revolve around the idea that markets are inefficient), investors will be better positioned for success.  

Next, we have the Nobel-Prize-winning modern portfolio theory, developed by Harry Markowitz, Merton Miller and William Sharpe, which demonstrates that for the same amount of risk, diversification can increase returns. In any level of volatility, investors can maximize expected returns by finding assets with academically proven risk premiums and low correlations. Diversify, diversify, diversify. 

Lastly, Eugene Fama and Kenneth French’s three-factor model analyzes risk between stocks versus bonds, small-caps versus large-caps and value versus growth stocks. Understanding differences in exposure to each of these factors can help determine the right allocations and build resilient portfolios.

While it’s safe to say we’re all looking forward to leaving the events of 2020 behind, the tumultuous year served an important lesson for investing: You cannot let a pandemic, market volatility or political discord sway you into making unwise financial decisions.

Advisors must caution their clients to steer clear of dangerous behaviors such as dumping all their money in a new tech stock or attempting to profit from stock picking apps that don’t encourage prudence. Trusting in academically sound principles and resisting the urge to gamble will better position investors for a successful future

Everyone has a purpose for their money, whether it’s sending their children to college, caring for an elderly or disabled family member, engaging in philanthropy, traveling the world, or simply being able to retire comfortably. Keeping these goals in mind is critical when developing a successful portfolio.

We don’t know what the coming year will hold, but what we do know is that based on historical crises through the years, the market always ends up recovering.

Holding a long-term outlook in 2021, it is my view that market performance will reaffirm that equities are the greatest wealth creation tool known to mankind, and that if investors take the time to understand their risk/return preferences, diversify globally and above all, stay invested, they’ll be one step closer to reaching their goals.


Mark Matson is the founder and CEO of Matson Money, a wealth management and advisor coaching firm based in Scottsdale, Arizona. Matson Money works with 541 advisors and 33,000 investors across the U.S.