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http://www.behaviorgap.com/risk-stable-markets-investors-turkeys/
Now is the perfect time to start!
I was watching an interview with Pulitzer Prize winning author Thomas Friedman this week who is part of a new series on Climate Change called “Years of Living Dangerously”. In the interview Friedman was asked if it was too late to do anything to make a difference. He responded:
“Now is the perfect time to start!”
I am not writing this blog to voice my opinion on climate change. (Although a little part of me wouldn’t complain if Chicago turns out to be the new Miami!) However, starting now struck me as a great perspective.
I am told all the time, “it’s too late, I didn’t contribute to my retirement plan, I didn’t plan for my kid’s college, I haven’t done anything about my estate planning or I missed that investment opportunity”.
My response had been that “it’s never too late”. Going forward, I think a much better way to look at it is “now is the perfect time to start!”
I know that instead of worrying about the sector that was missed, I can focus on the next asset that’s positioned for good performance.
Maybe for you, now is the time for a portfolio review or to get a second opinion on your financial affairs. If it’s not too late to make a difference when it comes to something as huge as climate change then maybe there is a little bit of room for this perspective in all of us.
One of the most important things we do for our clients:
I am often asked how we add value to our clients when it comes to their investments. I say the most important job I have is to stop a clients’ behavioral bias from getting the best of them.
Recency Bias convinces us that whatever the market has been doing of late will continue. This is one of the reasons that many investors continue to buy high and sell low when they should be doing the opposite!
As you can see from the Chart above even after the equity markets rose dramatically in 2009 and 2010 most investors could not get over the fear they experienced from the financial crisis and continued to put money into bond funds and take money out of equity funds.
That trend finally reversed with the dramatic rise in the markets in 2013. Recency bias kicked in and money is following the high equity returns.
Protecting our clients from these biases is one of the most important things we can do.