Financial Psychology: How Financial Advisors Can Use Psychology

Published in Financial Psychology on June 21, 2022

What does financial psychology mean to you?

When I hear the term financial psychology my thoughts immediately turn to the field of behavioral finance. As human beings we are wired successfully for survival, but not so great for investing! Interestingly the instincts, behaviors and biases that humans developed to help us thrive as a species are the very things that make us lousy investors. Survival mechanisms such as fear and greed that once helped us to run from a predator or gorge ourselves on a berry patch don’t translate well to our ability to stand firm in the face of the whipsaws of financial markets.

How does your clients’ psychology impact your advising and their financial decisions?

One of the best things an advisor can do for a client is to help him or her become more aware of the very real danger of our innate psychology and its potential to destroy one’s wealth – thereby hampering our ability to achieve our hopes, dreams and goals for the future.  One of our primary objectives as an advisor should be to educate our clients and help them see the very real danger we pose to ourselves and our portfolio’s success. Managing behavior successfully leads to managing money successfully.

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