How to Fight Investing Panic

Your long-term financial success depends less on the structure of your portfolio than on your ability to adapt your behavior to changing economic times. Who can you turn to for help?

An increasing number of financial planners realize that their primary business isn’t just producing your financial plans or furnishing you with investment advice, but caring for and transforming your emotional well-being.

At the very foundation of such well-being lies your behavior. I was pleased to see investor behavior as a featured topic at a recent conference of the National Association of Personal Financial Advisors in Salt Lake City. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

Murray told a large group of planners: “The dominate determinants of long-term, real-life investment returns are not market behavior, but investment behavior. … Put all your charts and graphs away and come out into the real world of behavior.”

This made me recall similar advice from the 2009 Financial Planning Association retreat, when California Lutheran University finance professor Somnath Basu said: “Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next.”

Most advisers agree that, while meticulously constructed investment portfolios can probably weather almost any economic storm, none can withstand the fatal blow of an owner who panics and sells out. So prevalent is such panic that an entire field — behavioral finance — studies how and why investors like you might make dumb money moves.

Here, financial advisers’ skills with jittery investors often pay off. Murray, who calls planners “behavior modifiers,” reminded his audience that advisers are “the antidote to [investors’] panic.” He added that most advisers will try everything to keep a client from turning a temporary decline into a permanent loss.

Murray wasn’t optimistic, though, that the tendency in all of us to sell low and buy high will stop anytime soon. He asked his audience to think about clients who perhaps panicked, not just during the market crash of 2008, but also several times since.

His final advice to a roomful of advisers was blunt: “Stop wasting your time on these [panicky] people. Save your … talents for those who will accept help from you.”

I have certainly learned — often the hard way — that trying to help people who aren’t ready to change is futile. Yet I disagree to some extent with this part of Murray’s advice. If clients went onto the ledge more than once but called me to pull them back in, then together we did modify investing behavior.

I saw this not as a waste of time but as a successful use of the behavioral coaching that is one component of client-centered financial planning. This is a far different scenario from that of a panicked client who refuses help by ignoring or rejecting a planner’s advice and skill.

Supporting your financial and emotional well-being often requires that both you and your adviser learn from each other and work together over the long-term. You both also must realize that antidotes to panic sometimes require more than one dose.

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Rick Kahler, MSFP, ChFC, CFP, is a fee-only planner and author. He is president of Kahler Financial Group in Rapid City, S.D. Find more information at Contact him at, or 605-343-1400, ext. 111.

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