Markets are up, but many still grieving: Academic

Even though the stock market has rebounded, many investors are still grieving because of their financial losses, and for some, that pain is as powerful as losing a loved one, according to a leading academic. Speaking at InvestmentNews’ Retirement Income Summit in Chicago today, Andrew Lo, a professor of finance at Massachusetts Institute of Technology, told advisers that it’s normal for clients who suffered huge losses during the 2008 crash to continue to have difficulties making logical decisions, because they’re grieving. “When you lose half of your wealth, that’s traumatic,” he said. “It’s a very difficult thing to live with. Some people handle it better than others. Some are devastated.” As for how long it takes someone to get over such trauma, Mr. Lo said: “It depends on the individual and the nature of the emotional trauma.” He said most clients cope with financial loss by going through the same five stages of grief experienced when a loved one dies: anger, denial, bargaining, depression and acceptance. For this reason, advisers need to help clients focus on the logic of every financial decision, but also factor in their clients’ emotions. “Lack of emotion can also lead to irrationality,” he said. “If you don’t have enough emotion, you have no reason to get out of bed in the morning, and you won’t have any reason to make rational decisions.”