D.J. Tierney:
Investment markets in 2025 have been anything but boring. The snapback of the US equity markets from the near bear market downturn in the spring, to new all-time benchmark highs this summer, has been a classic reminder of the value of staying invested. The continued outperformance of international equities also is an important reminder of the value of diversification. Amidst the equity market swings, the US economy has shown resilience thus far this year as its deceleration phase slowly plays out. Maintaining clients' confidence and commitment to a long-term financial plan may be challenging amidst the noise emanating from DC and the market volatility. Meeting younger generations' interest in crypto investing is another challenge many advisors are facing amidst record highs for Bitcoin and new laws advancing crypto regulation. Viewing these challenges through a behavioral finance lens can illuminate a few tactics that may be helpful.
When a new investment category like cryptocurrency emerges and creates extreme wealth for some early investors, you may have clients that worry they're missing out. This behavior, fear of missing out, or FOMO, is an emotional bias. It can lead to a rush to buy an asset they may not understand and places their financial goals at risk due to market volatility. To best address an emotional bias like crypto FOMO, our guidance is to take the time to acknowledge that the allure of crypto makes sense, and then suggest a course of action to learn more about the crypto space, perhaps even seek a compromise with a modest investment that is appropriately sized for the risk category. This can satisfy the FOMO without sending their portfolio off track from their financial goals. With a constant news cycle about Washington policies this year, many investors are getting anxious even amidst the market recovery. This US market focus or home bias may lead your clients to remain unaware of the strong outperformance of international equities in their portfolios and the comforting reinforcement this diversification is delivering.
Reminding investors of their overall portfolio allocation is a good tactic to anxiety amidst the DC headlines. If you're looking for tools and insights to help coach clients, please check out our advisor playbook. It has suggestions on anticipating and managing investor biases through economic cycles and market volatility. Additionally, if you have questions about your client portfolio allocations, we can provide a portfolio consultation, where we benchmark your portfolio versus our model portfolios for comparative analytics. We are here to support you.
Disclosures
Past performance is no guarantee of future results.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.
Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third parties, and Charles Schwab & Co., Inc. does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
