We’re in a golden age for apocalyptic thinking.
The threat of AI has taken center stage, but there are omens anywhere you’re motivated to look: countries trading ballistic missile fire, ballooning national debt, soaring energy prices, and, of course, that old standby, the climate crisis.
It’s no surprise, then, that Gabriel Shahin, founder of private wealth advisor Falcon Wealth Planning, has seen the steady increase in doomerism among his clients since the COVID shutdown reach new heights this year.
Now, Shahin’s firm is spending more time than ever protecting its clients from making financial decisions based on fear rather than logic.
“Our job is such a bizarre job,” Shahin said, adding that sometimes being a certified financial planner isn’t enough. “We need PhDs, or PsyDs, to be working at Falcon because that’s what we do.”
Finding a way to steer clients away from their apocalyptic visions while also protecting them against very rational fears is a balancing act for financial planners.
Dhruv Maniktala, chief investment officer for True North Advisors, told Business Insider that it’s important to find a middle ground between “protecting against ‘doom,'” and giving up on the upside that comes with keeping your money in the market.
“I think doomerism exists, but if you are wrong for 5 years, even if you are ultimately right after that, you are so far behind that it’s impossible to catch up,” Maniktala said.
Understanding doom
It’s much easier to imagine a future “catastrophe” than “joy,” said Dr. Daniel Crosby, chief behavioral officer at Orion Advisor Solutions. Psychologists call this the “negativity bias.”
“It served our ancestors well when survival depended on noticing threats,” he said. “It serves modern investors poorly when financial media outlets compete daily to feed exactly this instinct.”
So, when a client comes in expressing concern over incoming doom, Rick Nott, a senior managing director at Angeles Wealth Management, tries to understand the “one emotion, above all, that is being communicated”: fear. The role of a financial planner, he said, is to understand and respond to people’s financial emotions.
“I view my job as grounding someone’s goals, fears, and issues that could derail those goals into something that we can actually take financial action on,” Nott said.
Shahin’s firm, which focuses on volume and sees 3,000 leads a month, addresses its clients’ fears in its marketing materials.
Every major election year, his firm creates landing pages on its website that engage with the political doomsday fears of both major parties, but ends up with the same message: political opinions and investing don’t mix, and the best way to see your investments pay off is to keep investing.
Shahin finds that engaging with the fears rationally and calmly usually pays off.
Sometimes that means educating less-savvy clients that the US Treasury is extremely unlikely to go bankrupt, no matter the debt load.
“It’s almost like people want to be calmed down,” Shahin said. “They just need to tell you what’s on their mind, and it’s our job to calm them down.”
Matching fear to a portfolio
Still, portfolios can be customized to every individual’s personal fears.
“That’s why everyone’s portfolio looks different,” Nott said. “Everyone’s fear is so different.”
For people who are afraid of the United States sovereign debt and a weakening dollar, Nott helps them move to non-correlated assets, he said.
For clients who not only fear AI but also harbor hatred toward those companies, Shahin recommends they actually invest in them as a form of emotional hedging.
“If they fail, you lose your money, but at least you’re happy because one of the most powerful companies is out of business,” Shahin said. “And if they make money, great, you just made a bunch of money.”
In the end, when it comes to what a client wants, Nott is “Swiss,” and does what his client has hired him to do, he said.
“I will, of course, educate and inform as much as possible, but at the end of the day, it is their financial capital,” Nott said.
Shahin said that sometimes his firm will play hardball if a client wants to make incredibly risky moves — “We’re not going to buy gold at $5300. If you don’t like it, fire us” — but usually tries to find ways to satisfy the most stubborn clients with the least amount of money possible.
“We always say, ‘Stop arm-wrestling the client, let’s play Jiu-jitsu with them,” Shahin said. “We give them a little so they feel like they have a win. On a million-dollar portfolio, with $10,000 or 1%, let’s do what they want.”
All-weather optimism
Other advisors, like True North’s Maniktala, take an “all-weather” approach of “investing not for the most likely outcome, but for most potential outcomes.” In other words, rather than building a portfolio solely around the expectation that markets will continue to go up, construct a portfolio so that there’s ample protection if they don’t too.
As CIO of sister-company Western Alternatives, Maniktala designed funds that use hedging or alternative assets to provide all-weather returns for the firm’s clients. Due to demand from other advisors, they’ve now opened up to outside advisor clients as well, and he now manages $1.8 billion of all-weather funds.
Doomsayers attract the most attention, but Dr.Crosby said that over the long term, the “quiet optimism” of investing ends up winning the day. There’s never been a 20-year period in modern market history in which the US stock market has produced negative returns, he said. By investing, you’re making an “act of optimism” that “the future will be more productive than the present.”
“The world has gotten safer, healthier, longer-lived, and more prosperous than the doomsayers of two centuries ago could have imagined,” he said. “Investing well is, at heart, a wager that the next two centuries will continue the trend.”
Are you a doomer? Do you want to talk about how it impacts your finances and investing? Contact this reporter via encrypted messaging app Signal at @alexnicoll.01 using a non-work phone, email at [email protected] or [email protected], or Twitter DM at @nicollsanddimes.
