Most planners have struggled at times to deal with "difficult" clients. Sometimes it's the client who says he's really tolerant of risk and wants 30% returns... until the decline comes. Other times it's the client who refuses to tolerate any risk whatsoever... yet laments the low returns that entails. Accordingly, most planners try to avoid working with clients at the extremes of risk tolerance (or lack thereof). But the truth is, these challenging clients usually do not really have extreme levels of risk (in-)tolerance... instead, the problem is actually with their risk perceptions, and it requires a different solution.
The members of Generation X and Gen Y have had a unique collective experience, including growing up in the age of computers and (especially for Gen Y) with immersive exposure to the internet and the information resources it provides. Questions that might have required a trip to the library or an Encyclopedia Brittanica can be answered in a 10-second Google search. So if clients can look up a financial question in a few moments on the internet, where does that leave the value of financial planning?
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Most planners doing financial planning reviews with clients have witnessed the phenomenon: when markets go up, clients look at their growth rates; when markets go down, clients look at the dollars they have lost. What can behavioral finance tell us about why we have such an asymmetric view of the market's ups and downs?
Recent research on the reaction of investors to the 2008-2009 market downturn has confirmed an interesting tendency of investors that I have long believed - the better our returns, the more we're willing to save. Yet the irony is that theoretically, the better our returns, the LESS we need to save, because we'll have more growth from our investments. Nonetheless, if we don't account for this very human behavior about saving, we can end out with some disastrous financial planning advice.
As I come up to speed on the world of blogging, it is my goal to make it easier for all of you to read the content on this website. Accordingly, I have configured this blog's content to publish via FeedBurner, so that you can conveniently using any number of blog reader programs to keep up with new content.
Earlier this week, the National Commission on Fiscal Responsibility and Reform released a draft version of its proposals on how to take control of our nation's deficit challenges, including suggestions for comprehensive tax reform. The good news in the proposal is that it includes a repeal of the highly unpopular Alternative Minimum Tax (AMT). The "bad" news is that the proposal also includes a repeal of many popular tax credits and deductions as well. But the reality is that we can't really have one, without the other.