It's Not About the Nail
March 31, 2015·0 comments·adaptive investing
The conversation between advisors and investors is breaking down, but the problem isn't what either side thinks it is. Investors are nervous and dissatisfied, advisors are nodding and offering solutions that make sense on paper but land nowhere in reality. The disconnect runs deeper than performance or portfolio construction. It's about what investors are actually afraid of, and what advisors are actually not hearing.
- Investors aren't asking for what advisors are trained to offer. After six years of gains, the traditional request for diversification has vanished. Investors are asking for de-risking instead, which sounds similar but operates on completely different logic.
- The bull market itself is the problem. Investors don't trust this market because they believe it's artificial, a creation of central bank policy rather than real economic growth. That suspicion creates a psychological urgency that no amount of optimization can touch.
- Risk means two very different things in an investor's mind. One is the technical concept of volatility and returns. The other is regret. Advisors speak the first language fluently. They're nearly silent on the second.
- Regret changes depending on what the market is doing. In a downturn, you're afraid of ruin and will trade almost anything for safety. In a bull market, you're afraid of missing out and being called reckless. The fear is different, and so the remedy has to be different.
- The strategies that work require doing the opposite of traditional de-risking. You need to increase reward while reducing volatility simultaneously. That's not a small ask, and it means the real conversation investors need to have is about what they're actually trying to avoid.
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