Brushing Up on Behavioral Finance Basics

Leave a comment

When losing weight, it’s helpful  to weigh yourself every day and to keep a food diary. If you have a tracker like Fitbit and its Aria smart scale, you can track your weight data on the Fitbit app. You observe weight trends and your journal can inform you of what emotions trigger overeating. Also tracking what you eat informs you of what foods cause spikes in your weight and which are good for weight loss.

It might seem elementary to liken weight loss to investment performance, but they are similar for a myriad of reasons. The most important of which being that people are innately bad at both losing weight and investing on their own. They do best with support—whether it’s a personal trainer and nutritionist or a financial planner.

“Getting healthy is a lot like investing—it is incredibly easy in theory and very difficult in reality because we are constantly getting barraged with emotional biases that tempt us to do things that are against our best interests,” Cullen Roche wrote in the MarketWatch article titled, “Why You Should Think of Investment Managers as Personal Trainers.”

In light of the recent market correction, and with experts projecting increased volatility for the rest of the year due partly to the Fed raising interest rates, it might be a good idea to brush up on some behavioral finance basics that can help your clients stay financially fit and mitigate their impulses to make bad choices.

Start the conversations about volatility now, suggests Investment Executive in an article “Preparing Your Clients for a Bear Market.”

Have clients keep a journal. In losing weight, support groups oftentimes encourage you to keep a journal of your feelings to see what triggers overeating. An article in USA Today, “What Investors Can Learn from the Stock Market” recommends this tactic. Recommend clients keep a journal of what they were feeling and thinking during various portfolio changes, which over time, can help identify triggers for bad investment decisions or impulses.

The USA Today article also recommended having clients stay away from the news. You’d have thought that the recent market correction was a full-on recession by the way some cable news networks reported it. Sometimes ignorance is bliss, and during a downturn could be one of those times.

Investment Executive suggests being transparent with your clients and helping them understand your strategies and processes so they can remain confident that you will help them through downturns.

Lastly, have clients focus on the facts, USA Today reports.

“I’m a big fan of facts and data,” Brad Bernstein, senior vice president of wealth management at UBS told USA Today. “It’s a great time to remind clients about market history. And that corrections are normal.”

Ana Headshot

Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at Follow her on Twitter at @AnaT_Edits. Join FPA during its SPRING MEMBERSHIP DRIVE. Save $200 by 5/31 by using promo code MAY18 at 


Leave a Reply