In my discussions with clients and prospects, one of the recurring themes is how, as their investment advisor, I can best provide advice contrary to their bias, intuition, or reaction to current business/economic  events.

An example is the current investor bias toward equities since the stock market has performed so well recently and bonds are feared because of the threat of increased inflation.

It is probably natural to hear that the asset allocation decision made just a short time ago is being questioned based on market psychology and the resulting impact on investment decision-making.

My role, as an investment advisor and fiduciary, is to challenge these tendencies and serve as a source of independent insight.

One client is a couple in their early 50s who have put two of three children through college.  They have a substantial joint income, no debt, but few investment assets.  We have established that they will require $2 million in investable assets to afford a comfortable retirement and they have less than one-third of that amount presently.  We have used an Aggressive Model for their investments with 70 percent invested in equities.   Investment panic has set in with the realization that full retirement in their early 60s is unlikely.  Their reaction is to move 100 percent into equities and is buoyed in that opinion by the recent stock market results.

As their investment advisor, I want to avoid simply confirming my clients’ bias in order to accommodate them.  They are overconfident in the stock market by extrapolating recent gains into overly rosy forecasts.  I find this behavior pattern is especially prevalent with people who have been successful in the business world.  It is similar to the thought that “I can beat the market” since I have made other correct decisions in my professional career.

Research has shown that individuals who report that they are “100% sure” of a particular fact are wrong 20% of the time.  I experience the phenomena with my barber, who never met a fact he could not mangle.  Overconfidence is the best known bias in making investment decisions.

Clients working with Rockbridge have two advantages.  First, we provide investment models that are not subject to current whims of the investment media.  Second, we provide independent advice and we see our role as providing an unbiased viewpoint.