How advisers can explain the big difference between trading and investing

Help clients understand that a difference does exist and respecting that difference matters if they want to reach their goals.
OCT 07, 2016
When we turn on the TV, we're expecting to be entertained on some level. It doesn't matter if it's HBO or CNBC. Now, we may not think about it that way, but producers focused on attracting eyeballs do. Over the years, I've been fascinated to see the entertainment complex that's built up around finance. What's really clear is that it isn't meant for investors, but for traders, people who believe speed is paramount. But I suspect your clients don't always realize that. So when they hear the "breaking news" or read the headline that pops up in their inbox, it can feel tempting to react, to do something. (More: How advisers can effectively talk about risk with clients) But as a real financial adviser you understand there's a big difference between trading and investing: One is about value; one is about price. One is about the long term; one is about the short term. So when the phone rings, you need to be prepared for that conversation. How do you help your clients understand that speed doesn't apply if you're an investor? Start by giving them context. Even though the words are used interchangeably, they don't mean the same thing. If they have a plan, if they have goals, they're investors. Months matter. Years matter even more. In other words, they don't need to make decisions on Tuesday based on what the markets did Monday. For traders, though, speed has become central to everything they do. The latest information matters. Making something happen in milliseconds matters. But none of that applies to your clients. (More: Give yourself permission to see financial advice as creative) I understand how hard it can be to help clients see and understand this distinction. After all, the people on TV are so persuasive, so certain that everyone should be doing something right now. The urgency to act can influence almost anyone if the message hits at the right moment. But in your role as a trusted adviser, you can help clients understand that a difference does exist and respecting that difference matters if they want to reach their goals. Carl Richards is a certified financial planner and the author of the weekly "Sketch Guy" column at The New York Times. He published his second book, "The One-Page Financial Plan: A Simple Way to Be Smart About Your Money" (Portfolio), last year. You can email Carl here, and learn more about him and his work at BehaviorGap.com.

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