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Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

Market volatility is a stressful reality for any investor. But when market turbulence strikes, financial advisors are in a unique position to help their clients anticipate and manage their anxiety around money. All it takes is understanding a little psychology.

And while it’s true that stock markets have improved since the recession in 2008, surveys show that investors and financial advisors still expect volatility to return throughout the next few cycles.

In fact, according to the Eaton Vance Spring 2019 ATOMIX survey, financial advisors consider managing their clients’ relationship to volatility to be one of their major concerns this year.

So what is an advisor to do? To better understand how a client might react to a volatile trend, it might help to think about their deep-rooted feelings about money and how they view their personal control of events.

Research shows that the wealthiest investors — those who make up the richest “one percent” — have a different relationship to investments than the less wealthy: They have what’s known as a heightened internal locus of control.

For the most part, humans either think that they’re in charge of what happens in their life, or they believe that life happens to them (those who believe they’re in control of their life and its outcomes have an internal locus of control).

Having an internal locus of control is associated with higher wealth, and because these people are more likely to take responsibility for the outcomes in their life, the top one-percenters are also more likely to believe in their own abilities to solve problems and achieve goals, make better investment decisions and react more calmly when volatility strikes.

Having an external locus, however, is associated with self-destructive financial behaviors.

Financial advisors can help clients move to a more centered approach by asking thoughtful questions about past financial decisions, and can assist in determining where a client’s locus of control lies.

Dr. Brad T. Klontz, an associate professor of practice in financial psychology at Creighton University Heider College of Business and the cofounder of the Financial Psychology Institute, uses what he calls “money scripts” to help understand investor behavior.

Money scripts are unconscious beliefs about money, which are developed in childhood, and drive financial behaviors as adults. Klontz considers there to be four groups: money avoidance, money status, money worship and money vigilance — and the first three are associated with lower levels of net worth, lower income and higher amounts of revolving credit.

Klontz offers questions that you can ask to determine a client’s unique script makeup.

What’s also encouraging is that, while volatility can be stressful for any investor, recent research shows that volatility can indeed lead to increased adaptability. Yale researchers found that primate brains are more actively learning when a situation is unpredictable than when the situation is easier to predict. This suggests that our brains become more engaged when facing a high-risk-high-return situation, because this is when we absorb new information and adapt for future outcomes with preferred results.

Watch our video above to see how you can leverage your clients’ psychological background to inform and build an investment strategy to help meet their goals.

From iShares:

Championing investor progress has been at the heart of BlackRock iShares’ mission from the very beginning, relentlessly pursuing better ways to invest. That’s why iShares by BlackRock is bringing you Macro Mindset, a series that equips financial advisors with psychological knowledge to enlighten their clients about the myriad factors that come into play when in tricky investment situations. To learn more about why ETFs should be considered in building a strong strategy, visit iShares.com.

Important information about iShares ETFs:

Visit www.ishares.com to view a prospectus, which includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Investing involves risk, including possible loss of principal.

Investing involves risk, including possible loss of principal.

Diversification and asset allocation may not protect against market risk or loss of principal.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

Source: Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

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7 Reasons Mental Health Issues And Financial Issues Tend to Go Hand-in-Hand (And It Has Nothing to Do With the Cost of Treatment)

Of course, it comes as no surprise that most people who walk into my therapy office are experiencing psychological distress in one form or another. But, the vast majority of those individuals are also experiencing financial distress.

It’s no coincidence. Research shows financial issues and mental health problems often go hand-in-hand.

One study found that individuals with depression and anxiety were three times more likely to be in debt. Other studies have even found a link between debt and suicide.

A slight decline in mental health (long before you’d meet the criteria for a diagnosable mental illness) can be linked to increased financial stress. And increased stress can lead to poorer mental health.

Think of psychological well-being as a continuum. On one end of the spectrum is mental health. On the other end is mental illness.

You fall somewhere on the spectrum–and it’s likely to change slightly from day to day depending on a variety of factors, such as your physical health, sleep quality, nutrition, exercise level, stress, and overall mood.

If your mental health stays in a poor state for a length of time–or it just continues declining–you’re at increased risk for financial problems as well. Here’s how poorer mental health can take a toll on your financial situation:

1. Life Feels Out of Control

When you feel as though you’re losing control over your mood and your thoughts, you’ll likely begin to feel as though life is out of control too–especially your financial life.

You may even lose hope about a brighter future. And who wants to save for a big purchase or put money away for retirement when life feels as though it’s spinning out of control. You might feel like the one thing you can control is your ability to buy something right now.

2. You’re More Likely to Avoid Problems

It takes a lot of concentration and fortitude to tackle a tall stack of bills or to call the credit card company to address your late payment.

And of course, sitting down to create a budget creates high anxiety and it’s often painful to face the facts. It’s much more tempting to avoid those sorts of problems when you aren’t feeling your best.

3. You Get Desperate for Temporary Relief

When you’re in pain, you’ll do almost anything to get out of it–even if it’s going to hurt you more in the long-term. It’s one of the reasons the term “retail therapy” was invented.

Buying something right now, whether it’s a new pair of shoes or a car you can’t afford, will give you momentary pleasure. But, there’s a good chance it will create more financial distress in the long-term.

4. Self-Esteem Plummets

Quite often, the worse you feel, the worse you feel about yourself. And that can lead many people to try and overcompensate.

Low self-esteem can cause someone to buy expensive clothing, a name brand watch, or even a luxury car in an attempt to project an image of success.

5. Energy Levels Decrease

A decline in mental health often means poorer quality sleep, increased feelings of fatigue, and more trouble staying on task.

All of those things make it much more difficult to think about paying off debt–let alone take action. And it’s hard to create a plan for the bigger overall picture when you aren’t in the right state of mind.

6. Unhealed Wounds May Come Back to Haunt You

When you’re feeling down, your brain will recall all the other times when you felt similar feelings–and those just might be the lowest points in your life. Quite often, emotional wounds that never healed get re-opened as your mental health declines.

And for many people, that leads to changes in financial habits. A father who was teased for not having nice things as a kid may overspend on his children to prevent them from experiencing the same pain. Or, an individual who has never felt good enough might take out a bigger loan than she can afford in an attempt to get the attention she craves.

7. It’s Tough to Think Clearly

It can be hard to think about your grocery list, let alone your financial future when your mental health is on the decline. Making decisions, planning ahead, and organizing your financial situation may feel like an uphill battle that you’re unequipped to fight.

How to Improve Your Mental Health

Fortunately, there are steps you can take to improve your mental health–which can also improve your financial health.

Taking care of your body with adequate sleep, exercise and nutrition, socializing with supportive people, engaging in leisure activities (even when you don’t feel like it) and setting aside time to take care of your needs (like managing your budget) can help improve your psychological well-being.

If you’re struggling to build mental strength, get professional help. You might start by talking to your doctor to rule out physical health issues that might be behind your symptoms (like a thyroid problem). Then, you might try talking to a therapist who can help you identify concrete strategies for feeling better fast.

By: Amy Morin

Source: 7 Reasons Mental Health Issues And Financial Issues Tend to Go Hand-in-Hand (And It Has Nothing to Do With the Cost of Treatment)

People with financial issues are more likely to suffer from mental health problems. The opposite can be said as well – People with mental health problems are three times as likely to be in debt. Guy Shone from Explain The Market says, “One in four are likely to suffer from mental health problems this year. And this is largely associated with financial issues.” In this segment, Shone explains how we could break the vicious cycle of financial issues and mental health problems. Shone talks about ‘Money and Mental Health’, a private body that puts problems faced by individuals in front of industries and attempts to break the vicious cycle. Tip TV Finance is a daily finance show based in Belgravia, London. Tip TV Finance prides itself on being able to attract the very highest quality guests on the show to talk markets, economics, trading and investing, keeping our audience informed via insightful and actionable infotainment. The Tip TV Daily Finance Show covers all asset classes ranging from currencies (forex), equities, bonds, commodities, futures and options. Guests share their high conviction market opportunities, covering fundamental, technical, inter-market and quantitative analysis, with the aim of demystifying financial markets for viewers at home. See More At: www.tiptv.co.uk Twitter: @OfficialTipTV Facebook: https://www.facebook.com/officialtiptv

Free Money for Everyone Sounds Great, But Finland Proves Basic Income is a Bust

Universal basic income experiments and other plans that seek to distribute free money seem wonderful considering so many people struggle to make ends meet because of their limited incomes. In the U.S., many legislators have called for federal and or/state governments to trial these economic policies. One recent proposal actually calls for people to receive money from the government even if they are unwilling to work……….

Source: Free Money for Everyone Sounds Great, But Finland Proves Basic Income is a Bust

European Central Bank Executive Dubs Crypto “Evil Spawn” of Financial Crisis – Aisshwarya Tiwari

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An executive board member of the European Central Bank (ECB), Benoit Coeure, dealt a verbal blow to bitcoin and the infant cryptocurrency industry when he termed the digital currency “a combination of a bubble, a Ponzi scheme, and an environmental disaster,” per a report by Bloomberg, published November 15, 2018.Speaking at the Bank for International Settlements (BIS) in Basel, the ECB banker called bitcoin a “clever idea” before adding that “not every clever idea is a good idea.” This comes just a few days after the head of International Monetary Fund (IMF), Christine Lagarde, urged central banks the world over to consider issuing digital currencies……….

Read more: https://btcmanager.com/european-central-bank-executive-dubs-crypto-evil-spawn-financial-crisis/

 

 

 

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