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Salt Lake City, UT 84106

August 2020

TruNorth Investment News

August 2020 Edition

If…uncertainty and anxiety have been a companion for you in 2020 read on…

Understanding what keeps you awake at night and helping to mitigate those possibilities is job one because the number one stressor in America is money.

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Since money is a major concern for American’s from all walks of life, today we will examine reasons’ why we as humans are hardwired to think and react about money in certain ways. The term we use in our industry is Behavioral Finance. Shedding light on why we do what we do can show us how we can take control of our impulses, so we can feel less stress about our money.

Behavior coaching is one of the most vital parts of the service an adviser provides. While there is strong evidence that portfolio value increases over time, investors can still feel compelled to react to short-term market volatility, which can undermine their long-term objectives. We will look at simplified human behavioral finance terms, how they manifest and how they can undermine your financial outcomes.

Loss Aversion- Humans tend to prefer avoiding losses than acquiring equivalent gains. This can result in selling winners too early or holding on to losers too long, or not doing anything.

Over confidence- Humans tend to over-estimate or exaggerate our ability to successfully perform tasks. Sometimes this results in trading too often on “news both good or bad”, or not having access to the tools of the trade to do a deep dive, making choices that aren’t informed.

Herding- Humans tend to mimic the actions of the larger group. This means we like to do what everyone else is doing, we feel there is safety in numbers—buying high and selling low is what statistics illustrates happens, and if it is right for everyone else to do it must be right for me.

Familiarity- Humans tend to prefer what is familiar or well-known. Over weighted in what you know-your company, your country, your “friend group’s darling investment” can result in lack of diversification and over weighted loss or the devil we know isn’t always better than the devil we don’t—think Enron, the old saying is one for a reason, don’t keep your (nest) eggs in one basket.

Mental Accounting -Humans tend to attach different values to money based on its source or location. This can be problematic when the values based on an investment is emotionally founded. I love this or I like that, and I don’t like this are reasons to select friends not always the best ones for investments selections.

Not all financial advisors are created equal. A common misconception is that all financial advisers are purely investment managers, whose only job is to select investments and achieve a certain level of return. Good financial advice, however, goes way beyond this.

The role of an adviser in coordinating a client’s wealth management needs by assisting with the accumulation, distribution and transfer of wealth can be complex. And this complexity becomes even more apparent as markets move into a time of potentially lower returns and higher volatility. It is important to quantify not just the technical expertise an adviser provides, but also the emotional support and guidance an adviser offers throughout a client’s investing journey.

The value of an adviser is meant to quantify the contribution that the technical and emotional guidance a trusted human adviser, delivering services and value above and beyond investment-only advice, can potentially offer. First-rate advisers build and regularly update custom financial plans, conduct consistent portfolio reviews, and also offer ancillary services such as conferring with tax professionals, estate planning and insurance specialists.

An excellent advisor will use knowledge and expertise to help clients build personalized portfolios, they provide emotional support as market conditions change, monitoring investment with an eye on cashflow analysis, retirement income planning and maintenance, Social Security and Medicare pre-planning advice is all part of the entire picture. Knowing when to do what is never the same for any two people since our financial lives are as individual as our fingerprints, and as life changes so does your needs.