If you’ve been following The Meakem Group for a while, or if you’re eagle-eyed when it comes to acronyms, you may have noticed Traci’s new ABFP® designation. What’s the deal? This certification reflects a growing focus on one of the most overlooked forces in financial planning: human behavior.
The ABFP® designation equips financial professionals like us with practical tools to identify emotional decision-making, manage behavioral risk, and coach clients through market volatility and life transitions. In short, it allows your financial advisor to harness the power of behavioral finance, helping you make smarter, goal-oriented choices. So, just what is behavioral finance?
Behavioral Finance: Uncovering the “Why” Behind Your Financial Choices
You don’t have to be a financial professional to know that people don’t always act rationally when it comes to money. It’s easy to see that spending all of your lottery winnings on a functional, lifesize replica of the Batmobile may not be the smartest move. But sometimes, it’s harder to see how our financial mindset may be sabotaging our goals.
Take the 2020 COVID crash, for instance. Emotions were already running high due to a worldwide pandemic, so when the DOW lost 37% of its value between February 12th and March 23rd, investors panicked even more and started selling. By November, the market had bounced back to the same standing it held in January. What happened to the people who sold when the market dropped? They had to decide when to buy back in, in many cases, losing more money than if they’d just waited it out (read more here on why timing the market doesn’t work).
Fear isn’t the only emotion that can undermine a sound financial strategy. Behavioral finance also studies how overconfidence, loss aversion, and herd mentality can keep you from progressing toward your goals. If you grew up in a paycheck-to-paycheck household, you may have an emergency fund that’s actually too large; paring it down could free up funds to work smarter elsewhere. Or, if you got really excited about Bitcoin, you may have concentrated your investments there, exposing yourself to too much risk.
The problem with traditional finance models is that they often leave emotions off the table. These emotions can lead us to make decisions that conflict with our long-term financial goals, even when we know better! Behavioral finance helps us understand what drives these decisions so we can develop healthier mindsets and get out of the reactivity rut.
It’s Not Just How Much You Save, But What You’re Saving For
Understanding the psychology behind money decisions isn’t just about helping you save smarter. A few years ago, Traci started seeing firsthand the prevalence of depression among retirees. You’d think retirement would be nothing but a breath of fresh air, but in reality, retirees are twice as likely to experience depression after retiring as they are during working years. “People work for years and years to get to retirement,” Traci notes. “They finally get there, and they look around, and they’re not happy. And they don’t understand it.” This prompted a desire to learn more about the psychology of finances by creating a video series on depression in retirement, and, more recently, getting her ABFP® designation.
Behavioral finance can play a powerful role in navigating depression in retirement. Instead of only asking “How much is enough?”, it encourages a more meaningful question: “What am I saving for?” We help clients answer this question through our Dream Book process, where we dig a little deeper into what retiring to your happy place looks like. Making your financial goals specific and tangible can help you stay on track–especially when it’s tempting to let emotions call the shots. And ultimately, this can help mitigate the effects of depression in retirement.
We’re Committed to Helping You Get There
After more than 20 years of advising clients, we’ve seen a consistent pattern: people’s daily behaviors don’t always align with their long-term goals. They may understand the plan on paper, but the stress, habits, and emotions of real life can get in the way.
Traci’s new ABFP® designation reflects our commitment to helping you be Smart About Money™, even when the voice in your head tries to convince you that the mattress is the only safe place for your savings. All the credentials we pursue are specifically chosen so we can help you to the best of our abilities. If you want to learn more about what credentials to look for in a financial advisor, check out this guide.
At The Meakem Group, our goal is simple: the more we learn, the more effectively we can serve. And we can’t wait to serve you!
Dow Jones Industrial Average Total Return: This index covers 30 major NYSE industrial companies. The Dow represents about 25% of the NYSE market capitalization and less than 2% of NYSE issues. It is a priced-weighted arithmetic average, with the divisor adjusted for stock splits. This Index includes the effects of reinvested dividends.