Vanguard: Investors Must Invest Based On Their Needs, Not Their Desires

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All the noise in investment media often prompts investors to change their asset allocations

In new commentary, Vanguard points out that at such times it is important for advisors to remind clients that they need to focus on their long term goals.

And that market timing could bring them huge returns, but it could also bring them huge losses.

Investment analyst Colleen Jaconetti of Vanguard explained what advisors need to remind their clients of: 

“Advisors tend to have a better perspective than their clients about the need to bear some investment risk to increase the likelihood of clients’ achieving their long-term financial goals. Some clients may have a tendency to misjudge the extent of this risk. Many times clients may advocate for asset allocations based on targets or desired returns that may be the result of a number of influences, such as clients’ unique return experiences or their expectations set by historical returns or the investment media in general.

“We believe it is better to select an asset allocation based on each client’s required, not desired, return—the return necessary to achieve his or her long-term goals—which is often meaningfully less than the desired return. Basing asset allocation decisions on the desired return, rather than the required return, may result in selecting an asset allocation that is skewed, sometimes quite heavily and unnecessarily, toward higher-risk assets.”

Jaconetti says advisors should always ask clients if their goal or circumstances have changed. “Listening, empathizing, and reviewing financial goals will help keep clients on track toward their long-term objectives.”

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