Tag Archives: invest

Investors Flight from The Market May Indeed Be A Rational Defense

Some experts are calling the recent mass exodus of small investors from the market an irrational reaction to unfound risk; others are hypothesizing that small investors need cash and their home values no longer support equity loans to survive so they are using their 401k investments to pay bills.

Personally, I feel small investors are feeling a tremendous level of anxiety and are having difficulty managing it. Their high level of anxiety and their inability to tolerate it precludes them from keeping their money in the market for the long-term and continuing to believe that they will be okay. The true definition of a suitable investment strategy is whether investors can maintain it over time – even anxious and volatile times.

Apparently, these investors are incapable of managing the stress of being in what they deem to be a risky strategy. But even sophisticated investors and professional money managers are anxious and unable to predict current and future risk in the market. So why should the small investor be any different. The difference may lie in unrealistic expectations and inappropriate risk taking that led the small investor into the market in the first place that is the real problem. If they weren’t diversified; if they didn’t understand the downside and determine whether they could withstand it, then they are feeling much greater stress and lack of tolerance in coping with their current feelings of anxiety and distrust.

There are a myriad of reasons why investors have reduced their exposure to securities and gravitated to what they perceive to be less risky investments like bonds, cash, and other fixed income vehicles. Perception is a subjective reality that is difficult to alter with objective facts. The problem is compounded by the volatility of today’s market and objectivity being illusive. You just have to listen to CNBC for a while and you’ll hear experts hypothesizing, and disagreeing whether we’re out of a recession or just heading into another. So how is the small investor to feel confidence or a sense of trust that the market will be kind to them if they stay? At least by doing something, they feel they have taken some action in their best interest rather than remaining frozen from fear.

I have empathy for these small investors who fell into the trap of feeling that they would be saved by the boom in house prices, stock market rallies and the optimistic view that kept all of us believing that the good times were here forever. For those who did not save some of the rewards from those flush exuberant times, or diversify to manage the potential downside of such a upside for the market it is a particularly stressful time. It is a time of reflection to learn valuable lessons for the future as well as a time to take an inventory of what can be done to manage personal financial insecurity and stress.

What my work has taught me is that the ability to tolerate anxiety and fear, manage stress and take small and consistent steps to control what can be controlled is often a defining difference between achieving a successful solution and optimistic financial future or sinking further into financial stress and insecurity.

Needed for Our Time: A New American Dream

Do you find yourself thinking about your expectations for financial well-being and how they’ve changed? We hear about this subject daily and we are all left with that puzzling question of what our future will hold? Americans are known as the eternal optimists always finding hope and feeling like we can fulfill our dreams to have the “good life”. However, in talking to many of our regular community members on www.kathleengurney.com, I’m finding a very different sentiment. Instead of optimism; I hear fear, anxiety, uncertainty, and even pessimism.

How soon might we find a crystal ball? Wouldn’t that be great? We all want reassurance that we’ll be okay. Of course, as adults we know that we can always do something in our own behalf to empower ourselves, but I find that there’s a desperate desire for the road map of how to get there from here.

So, in this state of distress. we can all follow the prudent advice of the rehabilitation programs that advocate day-by-day planning and focusing on what we can control. For me, I know that I can manage my anxiety about the future by having a concrete plan for my priorities. I try to make my goals reasonable, realistic and rewarding. My clients tell me they use those three descriptions and use them to manage their financial behavior and feelings. Clients find that my advice to take small steps consistently and purposefully help them achieve big gains over time.

So, maybe our new dreams will evolve and become clearer as we all start to focus on what’s most reasonable and rewarding for each of our individual situations.

Personalized Service and ‘Plain Vanilla’ Products: A Winning Formula for Advisers?

In reading an article in the Wall Street Journal, “Economic Policy ‘Nudge Gives Way to Shove” it again became apparent that economic pain is substantially more relevant on an individual basis – for individual clients and their trusted advisors.

The Obama administration naively thought that institutions would feel consumer pain and alter their policies and practices so that the individual consumer would be able to make suitable and rational financial decisions. If only consumers could benefit from what the Administration proposed to be “plain vanilla offerings” consumers would not be victims of institutional lack of transparency and self-serving products and policies. To that end, the administration thought public shame and exposure of these self-serving practices would alter the institutions’ behavior shaming them into adopting the administration’s suggestion of “plain vanilla” offerings. Ah, such naïveté.

What Obama et al have learned is that “institutional decision-making” is not driven by emotions such as shame, pain, and empathy for others. Rather it is much closer to rational economics; i.e., profit is profit and there is nothing personal or emotional about it. Shame is not part of the equation for institutions, says the Wall Street Journal.
So if this is true, it seems more relevant than ever for individual financial advisors to set themselves apart and deliver services which enable their clients to understand what’s most suitable for them and their individual situations.

In this economic climate, consumers are highly anxious and are experiencing a crisis of trust. Some feel that they are over-reacting in their distrust and falsely accusing all financial professionals; i.e. guilty by association. So, advisors who have always been empathetic and ethical are guilty by association. This is unfortunate.

More than ever, it appears that consumers need ample time for understanding what products are suitable, building confidence and trust in the advisory process. Most importantly, they need a sense that their individual situation will be understood and that products will be transparent and tailored to their needs. This isn’t news.

There are plenty of financial professionals delivering such services but unfortunately many consumers don’t trust themselves in knowing when and whom to trust. When asked how they would know that they had found such a trusted financial advisor, most agreed that they’d know because their individual situation would be understood and that this advisor could work with people like them.

This is the central theme of my work, www.financialpsychology.com.

Managing Investor Fears in These Challenging Times

Today more than ever, consumers need and want trusted advisors to help them cope with their fears and anxieties. They’re looking for a way to assure the safety of their assets and a way to assure their sense of financial well-being in a challenging financial environment. While assets are tangible and easy to measure, it’s more difficult for advisors to develop a gauge of how to deliver and measure their skills in delivering a sense of well-being.

Here are some tips that have worked for advisors based on feedback from clients:

– Set an example of stability and confidence. If your clients sense that you are clear about your priorities and in control of your actions, they will identify with your courage and strength. Your example will help to show leadership during these challenging times.
– Show caring and support for your clients. Inquire about their well being and that of their families. The clients who need you most may not have the time or the motivation to make the call.
– Help your clients to develop a sense of perspective. Economic conditions have always fluctuated at previous times of national and international challenges and crises, but the underlying strength of the American financial system has always shone through in the long run. Any hardships caused by recent events will not last forever.
– Remind your clients to take some time to relax. Emotional stress can cause fatigue, anxiety, insomnia, body aches, and other physical symptoms that hinder the healing process. Exercise, hobbies, and recreation can ease the mind and help your clients to deal more effectively with their situation.
– Remind your clients that not making dramatic financial changes during times of uncertainty and anxiety can be a sign of patience and prudence, not cowardice.
– Acknowledge your clients’ concerns and fears, while cautioning against impulsive and ill-considered actions. While we are all angry and disappointed, and we all feel uncertain about the future, we can cope best by focusing on what we can do to help ourselves and our families.
– Take this opportunity to review each client’s financial situation, to advise him or her regarding any changes that might need to be made. Taking small constructive actions at this time can help your clients to feel in greater control of their lives.

copyright 2010 Kathleen Gurney, Ph.D.