Look The Other Way
Coviello says there is plenty of research linking an investors’ poor investment performance to frequently looking at portfolios and investment accounts.
“What I often tell my clients is that if you don’t need to, why check your statements and balances every day? Why look at that app every day—it’s not healthy,” she said. “It’s why they hired a financial advisor. We’re the ones that should be monitoring and making changes and buying and selling in line with opportunities. Checking a portfolio every day causes more chaos for you and is not beneficial.”
Most investors, biased by a recent long period of benign volatility and inflation, don’t understand that some volatility and inflation is normal. So sudden drops like those of February and March of 2020 and sudden spikes of inflation are not only jarring on their own, but they’re exacerbated by a news media biased towards negative headlines that they believe will attract more readers and clicks and sell more advertising, she said.
Frame The Situation
Investor behavior will be impacted by how advisors and other financial intermediaries frame headlines and portfolio moves, said Coviello. She used the example of inflation, with price increases recently notching a 30-year high, as a good place for advisors to start.
“When you look at inflation relative to where we are a year ago or 18 months ago, these can be staggering numbers,” she said. “But if you put inflation into perspective over a longer period of time, it’s not really much higher than historic averages. It’s all about perspective and framing what’s going on in the world now in a way where clients can continue thinking much further into the future.”
Of course, having a financial plan in place helps clients frame recent news in terms of a longer term perspective, Coviello said.