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Know Your Role: Investment Counselor Vs. Behavior Coach Part 3

Know Your Role: Investment Counselor Vs. Behavior Coach Part 3

| May 19, 2021

In last week’s Edu-Blog, I promised to give you some ways to avoid getting emotional about the markets and investing in general. One of my favorite financial authors says something like; the performance of your investments doesn’t determine long-term financial outcomes; your behavior determines them.  As you know, I agree entirely with this. Last week I wrote about my role as a behavioral coach to my clients, and perhaps that is my most important role. 

I want to start off my tips on avoiding emotions when it comes to investing with an overview of what financial advisors spend the most time on for our clients. I believe that this will reinforce my point on what our role is. While most folks think we are poring over technical analysis on companies all day like Scrooge McDuck counting coins on Christmas Eve, this isn’t the real picture. 

Yes, we spend time looking at investments to make sure they are suitable for our clients. But, in actuality, getting to know you, developing a plan for you, and keeping you emotionally on track, so you don’t take a detour away from the plan and fail to meet your goals is where advisors invest the majority of our time. 

I would venture to say we spend over 70% of our time on each client as a behavioral coach, and I believe this is the right way to do things. Markets go up and down, the economic cycles in and out, and the media rants and raves, but at the end of the day, if you made decisions on your investments every time those things happened, you wouldn’t have any money left. If your advisor isn’t coaching you on how to handle your emotions when it comes to your financial life, I would consider what he or she is doing for you.

Here are some of the other ways to stay emotion-neutral when the market and the economy do their thing. And, a quick caveat here, many of them involve working with a behavior coach, ahem, financial advisor. Just saying…

Set Financial Goals

When you have a plan to stick to, and you know what you want to achieve, it’s a lot easier to not only save money but to stay on course and keep your eye on the prize. For many of us, the prize is retirement; for others, it includes other things like paying for college, wealth accumulation, or legacy building. No matter what the prize is for you, humans are goal-oriented; we just do better when working towards something. 

So, when you work with your advisor, (There it is!) and you get distracted by market performance, the behavior of other investors, the news, politics, that fancy new car, or whatever it is, we can help you stay on track by reminding you of your goals and where you are on the path to their achievement. And remember, your relationship with your advisor begins with your goals and creating a plan to achieve them. That plan is the compass for both you and your advisor, and it will keep you pointed in the right direction.

Don’t Look

That’s right, don’t look at performance. Don’t look at the performance of your investments, don’t look at the performance of the markets,  don’t look. You might think I’m crazy, but I say that for two reasons. First, it’s not your job to worry about performance; it’s mine; I like my job, please don’t take it away from me. 


And second, short-term performance doesn’t matter. If your investments are up one day, it doesn’t mean that when you start drawing income from your investments in retirement that your portfolio will have had positive performance the whole time. Nor does a down day mean a lifetime of negative performance. 


Market performance is a coin toss, so if you live and die by what your portfolio is worth on a daily basis, chances are you are going to make emotional decisions that will end up losing you money. Then you get off track on your plans, your goals start to look less achievable, you scramble to make better decisions to make more money but end up taking risky chances on certain stocks….you get the picture. Before you know it, you will be 90 and working at Home Depot. Of course, I am kidding by painting a drastic picture here, but the risk is real.


The risk is so real that there is a fancy-pants term for people who are frenetic market checkers, “myopic loss aversion.” In fact, a Dalbar study done in 2015 on investor log-in behavior showed some really interesting things. In a nutshell, the study showed that investor behavior is the leading cause of underperformance and a significant contributor to poor long-term performance. 


So what did the study show about the trigger happy portfolio checkers?

  1. The average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66%.
  2. The average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 3.66%.
  3. The average mutual fund investor was still unable to keep pace with the market based on fund flows’ actual volume and timing.


I don’t know about you, but I certainly wouldn’t want to confess to my spouse or friends that I lost almost 4% in the market because I was a nervous nelly. That’s a steep financial and emotional premium to pay.


Tune Out the Noise

Yes, you guessed it, I’m about to trash the media again! Listen, the bottom line is that the talking heads get paid to talk, so they have to have things to talk about. So they can pretty much make a story about people developing arthritis from bending down to get the newspaper in the driveway every morning into a healthcare stock explosion. Ok, maybe that’s a little much, but it’s not too far off, and you get my point. Don’t believe everything you hear and err on the side of caution when it comes to getting too into following the news and financial pundits. 

There you have it, three reasonably easy ways to avoid losing money by becoming an emotional wreck over something none of us has control of, to begin with! Next week, I want to wrap up by talking about the tried and true behaviors of successful long-term investors. I bet you will actually have more in common with these folks than you think. Have a wonderful week, and stay tuned for Part 4!

P.S. If you enjoyed what you've read here and found it beneficial, we encourage you to share it with your friends and family. I firmly believe that an educated investor is a healthier and more confident investor. 

Until next time...

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.

Investing involves risks including possible loss of principal. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Bonds are subject to market and interest rate risk if sold prior to maturity.

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  1. Tips to Keep Emotions Out of Your Investments

» Warning: Checking Your Portfolio Often is a Good Way to Lose Money