The issue: worrying and anchoring

How much a client obsesses over his or her investments can be traced to a phenomenon called anchoring—a psychological condition that stems from a person’s upbringing and experiences. Since many formative experiences involving money are negative, this can feed negative investor behaviour.

The worry factor

Worry is an important part of the decision-making process. Women are said to worry more than men, but the reality is men may worry just as much, but often don’t admit it.

Worrywarts find it difficult to make decisions: they’re in denial; they get paralyzed. People losing a lot of money in the stock market don’t want to face the decline in their portfolios, which may lead them to avoid seeing a financial planner or not opening fund statements.


Anchoring happens when a client lets a specific piece of information govern his or her entire thought process. Let’s say you want to buy a washing machine. The first machine you see is priced at $800, so you evaluate every subsequent option against that $800 price.

The 2008 financial crisis created a negative anchor. If clients focus too much on events that cause downside risk, or other bad investment experiences, it makes them risk-averse. That leads to a higher degree of worry, which can result in their underweighting in stocks.

The opposite example is the 1990s Internet bubble. People were anchoring on rising stock prices and wound up being more aggressive and overly invested in stocks. Then there’s the Millennial Generation, which came of age during the lost decade of the 2000s.

Their anchors tell them 6% returns are at best optimistic. Yet they were raised by baby boomers, who experienced up markets most of their lives. These boomers lavished their children with attention and in many cases still support them financially.

To bridge those expectations with the volatility of the markets, have Millennial clients automatically invest a fixed sum of money each month based on a predetermined asset allocation—and then forget about it. Advise them not to check their investments daily. This non-emotional approach will help control spontaneous sell-offs.

Financial literacy reduces worry

To keep clients from worrying, try to improve their financial knowledge. It will make them more confident.

Ask them, “What was your relationship with money during childhood?” Positive relationships often mean they’re willing to talk about money and go to a financial advisor. Negative relationships— being a child of divorce or having a mother or father who used money as a power play—likely mean they’ll be resistant to financial advice.

Two kinds of decision makers

  1. Classical: rational, analytical, makes decisions with aid of numbers and statistics. Would evaluate a stock using beta.
  2. Behavioural: invests from a gut feeling. Makes decisions based on experiential factors and emotions. Would evaluate a stock based on the company’s reputation.

Decision-making style

Our decision-making style may be influenced by demographics, age, culture, experiences, education and gender. “For example, men tend to be more aggressive and have riskier portfolios,” says Ricciardi. “But maybe a single woman would take more risk than a married man.”