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Now’s the Time to Defend Against Catastrophizing
Why you must guide your clients through today’s uncertainty
Ric Edelman: It's Monday, December 4th. Do you live in a flood zone? I told you about a new city that's opening next year in the Maldives. The entire city will float, so rising seas from climate change won't destroy the city and leave everyone homeless. But what about your house? You're not about to move to the Maldives, gorgeous as it is.
So that's a problem for everybody who lives along the coast. And when I say everybody, I mean, well, literally half of everybody. 3 billion people around the world live within 125 miles of a coastline. Rising tides, more frequent hurricanes, which are also stronger than ever, they're all placing these people at risk. So what are builders doing about this?
Well, in the Maldives, they're building a floating city. In Miami, developers are now building floating homes, and these houses are being built by people who build boats, not houses. So they're expert at making things that float. These houses sell for half $1 million to $4 million. All this demonstrates why you don't need to fear the future. We humans are pretty resilient, pretty clever. When our back is against the wall or we've painted ourselves into a corner, we figure out a solution.
But when you're pressed against that wall or you're stuck in that corner, it's pretty easy to get depressed, to be pessimistic about the future. You want to sell everything, run to cash, bury your money in the backyard. Well, that never works out well for anybody. You end up selling when prices are low and you miss out on the increases in prices that inevitably occurs.
And if you're not feeling scared or worried these days, I mean, I find that hard to believe considering everything that is going on in the world. Then your clients are scared and worried, and as their financial advisor, it's up to you to give them the reassurance they need.
And you can do this best not by just being a cheerleader, but by reminding them of the tangible strategies you've given them. A diversified portfolio where you rebalance it periodically, taking advantage of market gyrations so that when prices rise, you sell a little. When prices fall, you buy a little, and buying low and selling high pretty darn good way to create wealth. And you use sophisticated tax strategies like tax loss harvesting to help your clients reduce their tax bills, especially around this time of year. Keep your clients focused on the tangibles, not the theoretical or the conjectures. This helps them avoid catastrophic sizing, where they start to think that today's rain guarantees floods tomorrow, or that a market decline today means their investments are about to be wiped out.
And if you're the investor, make sure you're getting these services from your advisor and make sure you stay in close contact with your advisor when you're nervous or a headline has you spooked, pick up the phone. Call your advisor. Talk with them about how you're feeling. You'll discover they've got good answers to satisfy your concerns, and they'll give you peace of mind. And if they can't do that, well, that's a sign. It's not a sign you need to sell. It's a sign you need a new advisor.
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Exponential Technologies
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