As a person, managing my own emotions can be challenging. Understanding the environment around me is difficult. As an advisor, managing client emotions and expectations while balancing their wants vs. needs is daunting at times. Not because clients are hard to work with, but because I cannot always impute their emotions into my recommendations. Portfolio management is the clearest example of this. This article from Forbes does a great job outlining this challenge. I was reminded of 4 things:
1. Most individuals experience loss aversion. Losing feels twice as bad as winning feels good. We tend to focus on the negative. Simply put, we hate losing.
2. The spread between last year’s winner and last year’s loser can be quite large at times, but the difference between last year’s winner and a diversified portfolio is much more narrow.
3. We get hung up on short-term investment performance when our focus should be on long-term planning decisions.
4. I have a responsibility to see clients through difficult times and make sure they see the big picture instead of focusing on today’s headlines and account values.
It’s not easy, but it’s definitely rewarding.