By Antoinette Rodriguez, MBA
In economics and behavioral theory, loss aversion relates to how people inherently feel much stronger anxiety about loss than positive feelings around gain. Given that, it's no wonder that your clients may experience seemingly irrational reactions to losing money in the markets and especially during inevitable downturns.
So what's a Financial Advisor to do during these times?
First, recognize that loss aversion is a natural human instinct. Once mentally framed this way, you can then let your clients vent without taking it personally and gently guide them back to their long-term financial plan and goals.
Oh and if they're particularly squeamish, you might want to reevaluate that little issue of stated risk tolerance ;-).
So what's a Financial Advisor to do during these times?
First, recognize that loss aversion is a natural human instinct. Once mentally framed this way, you can then let your clients vent without taking it personally and gently guide them back to their long-term financial plan and goals.
Oh and if they're particularly squeamish, you might want to reevaluate that little issue of stated risk tolerance ;-).
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