Friday, September 16, 2016

The Softer Side of . . .

Normally, during my all-too-frequent hunting trips for continuing-education-credits, I search out lectures on economics and investing - you know, things I actually care about.  However, in the last few years, others have become more interested in the "softer" side of investing, called behavioral finance.

It is well known that investors damage their investment performance by selling out when fear is high, which is when the stock market is lower.  Then, they are slow to re-enter the stock market, missing its rise.  This is a very normal, if harmful, human behavior.  Yesterday, I heard a financial advisor describe a conversation with a client, where the client said to the advisor:  "I don't pay you to manage my money.  I pay you to manage my fears!"

I get the point:  To protect a client's portfolio, I must fight them when they are afraid and want to sell.  But, I question how black & white that should be.  There is more to taking care of a client than the value of their portfolio.  I would always tell a client they are making a mistake, but not all people are alike.  Some people can be re-assured, while others will fret and worry themselves sick.  Have we really helped a client if they can no longer sleep at night?

In another "softer" lecture, I learned that widowers are ten times more likely to get remarried than widows over age 65.  (This led to a humorous discussion of the "first casserole rule" - the first widow to deliver a casserole to a new widower wins!)  But, that raises financial planning concerns:  do we have an obligation to protect the inheritance of widower's children or do we encourage the widower to enjoy the remainder of his life?  Again, there is no black & white rule - we need to adjust our advice to the individual client.  Some widowers have the ability to enjoy life, and some don't.

And, some people say that economics is a "fuzzy science" . . . ?!?!