How does LFA help clients reduce emotion from investing?
We develop an Investment Policy Statement that defines the risk the client is willing to take, how the assets are to be allocated, the time horizon of the portfolio, and the fluctuations in value that are most likely to occur. Establishing allocation ranges and explaining why it is important to rebalance helps to remove the emotion from investing. We ask the client to sign the Investment Policy Statement as a reminder that when emotions start to gain control they are to review the policy statement and why they have agreed to the particular strategy. The key is that short-term losses are to be expected. When emotion starts to gain control, we ask that the client call us before making any sudden changes in their portfolio.
