I wrote this article on October 24, 2011 on my Golden Valley Patch Blog.
This last week in Chicago, the Center for Due Diligence hosted their 2011 Advisor Conference. The title of the conference was “Participant Advice, Retirement Income & Growth Strategies.”
This conference was an exclusive meeting of financial advisors who provide guidance and advice to company retirement plans. In the last few days, I have been reading several financial services media articles reviewing that conference.
One article that I read outlined the comments made at the conference by Shlomo Benartzi, a professor at UCLA. Mr. Benartzi is also a behavioral economist at Allianz.
In his conference presentation, Mr. Benartzi talked about the power of loss aversion. As an example, he related an experiment with two groups of monkeys.
One group of monkeys was given one apple, and the other group of monkeys was given two apples. When the group of monkeys who were given two apples had one apple taken away, they became very angry.
The main point of the experiment was that even though these monkeys still had one apple, the pain of their loss was greater to them than having one apple.
Have you ever felt the same way about losses in your company retirement plan account?
In my 13 years of providing individual investment advice to Minnesota company retirement plan participants, I have seen the same investor behavior on several occasions.
Once a company retirement plan participant sees a “high water” mark on their company retirement plan account statement, they “own” that amount of money. That amount of money is “theirs” and they don’t want to lose it.
Each time a stock market downturn takes any amount of money way from that all-time high company retirement plan value, the company retirement plan participant is angry, sad and frustrated.
There certainly have been several occasions in 2011 that have left company retirement plan participants feeling like they have lost one of their apples.
Ric Lager
Lager & Company, Inc.
