How to Help Clients Too Focused on the Little Picture

Investors in mutual funds that mimic the S&P 500 were awash with recency bias, inducing them to ignore a longer term trend: UNREALISTIC EXPECTATIONS In late 1999, the cosmic expectations for the United States stock market were utterly unrealistic on the upside. By doing that, many clients were h...

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Bibliographic Details
Published inFinancial Planning (Online)
Main Authors Israelsen, Craig L, Morgan, Darren
Format Trade Publication Article
LanguageEnglish
Published New York SourceMedia 01.09.2015
Subjects
Bias
Bond portfolios
Commodities
Equity
Financial planning
Investment advisors
Investment policy
Investments
Mutual funds
Portfolio management
Stock exchanges
United States > US
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Summary:Investors in mutual funds that mimic the S&P 500 were awash with recency bias, inducing them to ignore a longer term trend: UNREALISTIC EXPECTATIONS In late 1999, the cosmic expectations for the United States stock market were utterly unrealistic on the upside. By doing that, many clients were holding cash while the U.S. large-cap equity market experienced a five-year annualized return of nearly 13% between Jan. 1, 2003, and Dec. 31, 2007. [...]when the S&P 500 returned over 32% in 2013, many clients bemoaned a “lack of performance” in their diversified portfolios — even though a typical 60% stock/40% bond portfolio returned over 18%. Conversely, given the current bull run in the U.S. equity market, clients with risk scores that positioned them in a balanced portfolio may now be clamoring for a more aggressive investment strategy. [...]stick to the rules. Craig L. Israelsen, a Financial Planning contributing writer in Springville, Utah, is an executive in residence in the personal financial planning program at the Woodbury School of Business at Utah Valley University.