The biggest threat to investors’ financial plans may not be COVID-19, but rather their own minds. As market volatility continues, one of the precautionary tips making the rounds among social circles is to get out of the market. Even if an investor manages to avoid panicking after those conversations, a look at the news or a single scroll on their news app may bring their worries back to the forefront. In times like these, even the most logical investors can have trouble staying on track.
To help your clients manage their emotions through this turbulence, it’s important to first understand the psychological drivers behind their behavior. From there, you can work on separating their biases from their decisions moving forward.
When in Doubt, Herding Behavior Tells Us to Follow the Crowd
During times of market volatility when many investors are running for the hills, it’s natural to want to follow. This is a common phenomenon many financial professionals are familiar with: herding behavior.
In a time when many investors may be falling prey to this bias, here’s a quick primer on what can drive this behavior:
