The psychological state of the average investor these days is fluctuating somewhere between fearful, impulsive, obsessive-compulsive ...
WASHINGTON — The psychological state of the average investor these days is fluctuating somewhere between fearful, impulsive, obsessive-compulsive — just checked the 401(k) five minutes ago, better inspect again — outraged, disgusted, despondent, contemptuous, and sometimes, when the markets are perfectly aligned in the right amount of downhill commotion, all of the above.
“Everyone wants to just run away from their problems,” said Emily Chiang, an investment adviser at Alexander Randolph in Reston, Va. Like other advisers, Chiang says the extreme market volatility has her playing an urgent role for which she has no real training: psychologist.
How do you smooth a client’s hysteria when your training has been in understanding how markets go up and down, not wrestling with people’s emotions?
Chiang reads self-help books for tips but mostly relies on instincts.
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For more help, there’s a niche industry of psychologists and behavioral economists moving into the business of counseling personal-finance advisers on how to better handle their clients’ emotions.
Last week, more than 200 advisers logged on to an Investment Advisor Magazine Web seminar to get advice on communicating with their clients during stressful times, hearing from several experts, including Olivia Mellan, a psychotherapist who specializes in money issues.
“Everything about what I do is training personal-finance planners to listen empathetically, to understand the clients’ irrational behavior and build a bridge to wise action,” she said.
How should advisers deal with their clients during the market tumult and what should clients expect from them?
The interactions should mirror how therapists deal with any patient in a crisis, said psychiatrist Richard Peterson, who co-founded MarketPsych, a Los Angeles psychological and financial-consulting group who also capitalizes on the behavior of others when trading for his hedge fund.
“People have to get out of the stressful state and into the operational state,” he said.
Just the other day, Chiang fielded a call from a client who wanted to make an irrational move. Chiang said her instinct was to listen, let her client vent and once she saw an opportunity to make logical headway, she pounced — just as Peterson advises.
Her client backed off after listening to the consequences for her long-term goals.
Relaxation and visualization techniques — also a bedrock of therapy — can be helpful in these situations.
Peterson said one successful approach is for clients to sit back and visualize their lifestyle or retirement goals: the house in the leafy suburbs, the boat, the private schools they want their children to attend.
“You get them to think about the purpose of saving money, for their dreams and their vision of the future,” Peterson said.
“You will get them into an operational state. You don’t achieve that dream by selling out at the bottom. Then you can say, ‘Let’s sell a little bit of one position and let’s put it somewhere else.’ That’s an opportunity.”