Help clients navigate emotions when making investment decisions | Canada News Media
Connect with us

Investment

Help clients navigate emotions when making investment decisions

Published

 on

“We can’t say, ‘If you weren’t acting so emotionally, you would be able to make better financial decisions,’” she told attendees at the Investments and Wealth Forum in Toronto on Monday. “Everything we do, including financial decisions, requires emotions as an impetus. So we can’t ignore what’s going on in this deep region of our brain.”

This makes the role of an advisor — someone who can provide an objective, third-party perspective — that much more important. Similar to advisors managing a client’s risk, they may need to manage their emotions, Kramer said.

 

One example of emotions governing investment decisions is the correlations between seasonal affective disorder, investor behaviour and market performance — a phenomenon Kramer and her colleagues have studied for more than 20 years.

Kramer highlighted that traditionally, September and October are poorer-performing months for the market. The S&P 500 has seen a September decline of 7% or more 11 times going back to 1928, according to MarketWatch. While Octobers have performed better than Septembers, significant market crashes, like in 2008, 1987 and 1929, have occurred in October.

Both months are when days begin to shorten in the northern hemisphere, which can dampen moods among the general population. “We all just feel a little more despondent,” Kramer said. “The more depressed a person is, the more averse they are to risk, including financial risk.”

Kramer said her research has found that the riskiest categories of U.S. mutual funds tend to see large outflows during the fall and winter, when many investors experience increased risk aversion.

Conversely, she has found there tend to be large flows into the safest categories during these times.

Advisors who know about this tendency can educate their clients and help them avoid it.

“If investors act according to their emotions, if they sell risky assets in the fall and buy them back in the spring, they’re going to end up worse off. They’re leaving a lot of money on the table,” she said. “[You] don’t want people making investment decisions that is responsive to strong emotional urges.”

John Nersesian, head of advisor education with PIMCO, said during another session at the forum that advisors can help manage clients’ emotions by presenting them with historical data and evidence about how tumultuous markets in the past occurred and how investors who stayed invested rode the recovery wave.

Advisors should also show empathy to their clients, he said. As an example, advisors should consider revisiting the common phrase “stay the course.”

While advisors mean clients should remain invested and take a long-term approach, clients may interpret the phrase differently, Nersesian said.

After hearing the phrase, they may think: “I’m telling my advisor I’m in real pain right now. My portfolio is getting killed. Everything I’m reading suggests this may continue. My advisor doesn’t hear me; my advisor is hearing me, but they don’t care; [or] my advisor doesn’t have anything better to offer me.”

Nersesian suggested that instead of telling clients to “stay the course,” advisors can reiterate and clarify their clients’ concerns, tell the client they will examine potential options and reconnect with them in a week to discuss the best action plan. 

Source link

Continue Reading

Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

Published

 on

 

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

 on

 

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

 on

 

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending

Exit mobile version