Oftentimes, many investors get caught up in short-term results rather than looking at the big picture. This is known to behavioral economists as “narrow framing,” or “a tendency to see investments without considering the context of the overall portfolio.” Unfortunately, this idea can lead to many missed opportunities for investors.
Narrow framing can cause investors to either take too little risk or too much risk. People often get scared by daily market swings and keep their money in a bank account. On the other hand, people may invest in something considered risky without taking their collective portfolio into account.
According to this Wall Street Journal article discussing narrow framing, you can avoid these mistakes by checking your portfolio less often. Another suggestion is to aggregate your financial accounts by consolidating at one location, or by using software to display all your accounts in one place. This allows you to view your portfolio holistically, which can help to assess your overall risk exposure.
At Rockbridge, we help our clients invest for the long-term big picture. We come up with a portfolio in line with your risk tolerance and goals, and help you maintain a steady strategy throughout the ups and downs of the market. We can even help report on all of your accounts – even the ones we do not manage directly. It is our goal to help you avoid the trap of “narrow framing,” and become a disciplined investor. We will be here with you through it all!
Other articles filed under Investing
July 19, 2017
I often say that one of our primary roles as an advisor is to provide context and perspective for clients, allowing us to collaboratively make better decisions. Behavioral economists have identified narrow framing as the tendency for investors to make...
July 14, 2017
I recently returned from a fee-only advisor industry conference. In addition to educational opportunities, it was a rewarding experience to spend time with other like-minded professionals. Rockbridge advisors have been attending these conferences for almost 10 years, so I thought it...
June 26, 2017
Oftentimes, many investors get caught up in short-term results rather than looking at the big picture. This is known to behavioral economists as "narrow framing," or "a tendency to see investments without considering the context of the overall portfolio." Unfortunately, this...
May 24, 2017
Young or old, wealthy or poor, online or in person … Nobody is immune from financial scams and identity theft slams. No matter who you are or how well-informed you may be, the bad guys are out there, daily devising...
April 24, 2017
Stock Markets The accompanying chart illustrates the diversification story. It shows returns in several markets over both the March and December quarters. The upward sloping blue columns of the December 2016 quarter show an increase from the low (4% loss)...