Journal of Financial Planning: March 2026
Chris Fasciano is chief market strategist at Commonwealth. He represents Commonwealth (www.commonwealth.com) in various media appearances, adviser speaking events, and Commonwealth conferences. He also oversees and mentors a dynamic team of investment research analysts who specialize in equity and fixed income markets. Prior to this role, Chris spent 10 years as one of the firm’s portfolio managers, involved with asset allocation, and fund selection. With a deep background in small- and mid-cap stock research, Chris is uniquely positioned to analyze the latest economic data and offer valuable insights on navigating today’s volatile markets.
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Investors aren’t rational—they’re normal. In its simplest terms, the human brain is hardwired to become emotional at a time of crisis. As a financial adviser, you probably notice that your phone rings more often when markets are declining, as they did in March and April of 2025, than when markets are at record highs. And, most likely, your clients want to make wholesale changes to their portfolios when they’re losing money, not when they’re making it. But there are also times when markets are up that emotions can take over and have a detrimental impact on achieving goals. During the euphoria of a market high, a client may feel free to quit their job, even though this is the riskiest time to make changes.¹
When the market is up, money flows in. When it’s down, money flows out. From your seat, you can help folks overcome their emotions and guide them to make the best decisions to help achieve their long-term goals, whether they are buying a home, funding college education for their children, or generating income in retirement. By understanding what clients are going through and why they want to (or don’t want to) make changes, you can help them focus on what is truly important and empower them to make the best decisions for their long-term goals.
Before we more closely examine investor biases, let’s start with the key takeaway and discuss the best way to help your clients avoid having them influence their decision-making.
Start with a Plan
Having a Plan Is the Key
The most important thing is to have a long-term plan. An initial plan that meets a client’s long-term goals and objectives gives you a foundation to fall back on when decisions are being made under stress. Determining a client’s goals is critical to having a good plan. Their responses allow you to implement the appropriate portfolio to achieve those objectives. The original plan and portfolio allocation will be different, depending on which goals the client has. But it will be the key moving forward.
This plan can be used to remove emotions and help your client avoid making decisions when they are under stress to keep up with a hot investment theme or are worried about the future during a declining market.
Having an original plan in place that has stood the test of time is critical to navigating markets during good and bad times. If the plan was built for the client’s life goals, it would have a better chance to deliver on those objectives over the long term.
Let’s look at some behaviors your clients may exhibit during different market environments.
Behavioral Biases in Action
Herding
The fear of missing out on something great is common today. It has certainly been prevalent in the markets, where a handful of investments have dominated investor returns.
But it isn’t a new phenomenon. Take tulips, for example. In Holland in 1634, tulip bulbs were the most sought-after thing around. Prices skyrocketed, with some bulbs selling for prices equivalent to a home. That didn’t work out well for buyers when the market collapsed three years later. People lost a lot of money . . . investing in tulip bulbs!
If everyone else is talking about it, the thinking goes, it must be an opportunity that is well-understood. You don’t want to be left behind. My generation’s equivalent was the dot-com boom in the late 1990s. Any company with a website could come to the public market, get funding, and watch their stock skyrocket. Prime examples from this period were 1-800-Flowers.com and Pets.com. Because they had a .com in their name, folks assumed their growth potential was unlimited. (The Pets.com sock puppet even starred in a Super Bowl commercial!) Money poured into these firms. It was a chance to get in on the new thing. Everyone said it was different this time, so it had to be.
Sir John Templeton said the four most dangerous words in investing are “this time is different.” And that was certainly true when the dot-com bubble began bursting in 2000. The darlings of the era had unsustainable businesses models. More often than not, the crowd has been wrong.
Recency Bias
Recent events tend to be remembered more clearly. When people make decisions, therefore, current information has more weight than historical information. What is happening now in economic, monetary, or fiscal policy—or in the market—is viewed as much better (or worse) than anything previously experienced. Part of this is due to the world we live in. Information and opinions are far more prevalent. And we no longer need to wait for the nightly news or tomorrow’s newspaper to find out what’s happening; you can access that information 24 hours per day.
On some level, recency bias affects everyone. The most recent example was in early 2025. The S&P 500 Index was coming off consecutive years of returns exceeding 20 percent. As soon as the market started declining, however, investors got nervous. They remembered 2008 and 2022. Losing money has a bigger impact on people than making it.
Ben Graham once said, “In the short term, the market is a voting machine, but in the long term, it is a weighing machine.” This is an important message for investors when things are volatile. Generally, markets react to headlines in the short term, but over the long term, good companies with sound business models are rewarded. Showing a client that a well-constructed portfolio can weather difficult times and participate in the good times without assuming too much risk is helpful during short-term dislocations.
Historically, the markets sell off at some point every year. The average decline over the past 45 years has been 14 percent. But it’s important to note that over the past 23 years, there have been only four years with negative total returns.
Anchoring
People tend to focus on one piece of information rather than concentrating on other factors during periods of turmoil. It might be the price they paid for a stock, or it could be the most recent market returns in their portfolio. They become anchored to that price or return when making their next decision.
To offset anchoring, expand the time frame by looking back at some of the biggest market sell-offs—1974, 1987, 2008–09, 2020, 2022, and 2025—in isolation. It seems like the end of the world when they are happening, and clients tend to anchor on that feeling. If you zoom out and show them a chart that captures a long-term time horizon, however, those periods look like small blips.
One way to get around anchoring is to reframe the question: If we didn’t own the investment today, would we buy it? If the answer is no, it’s time to move on to a better idea. If the answer is yes, there’s no time like the present.
Loss Aversion
No one likes to admit they made a mistake. It’s hard to do. You see it when investors let emotions get the best of them. They sold at the bottom, so they don’t want to get back in unless it’s at a lower price. Or they have cash and are waiting for the perfect time to put it to work. You’ll need to be sensitive to these examples of loss aversion in order to guide clients away from making questionable decisions.
Your clients can also get emotionally tied to a stock or a fund. The sunk cost of their original investment weights on their future decisions. One of the best lessons I learned in my stock investing career was that, at the end of the day, you own a piece of paper. It doesn’t know you own it—and its feelings won’t be hurt if you sell it.
Having a long-term plan in place doesn’t mean doing nothing is the best choice. Portfolios need to be proactively managed. When short-term headlines begin to affect actual fundamentals, whether it’s a stock, sector, or asset class, the sunk cost isn’t relevant to the investment decision. If continuing the same course of action results in further losses, you’re exacerbating the mistake. The outlook is the only thing that matters.
The Plan in Action
Understanding that it’s perfectly normal for clients to make emotional decisions about their investments can help you devise a plan. The best approach is to recognize that your clients’ feelings are real. They have a reason for feeling the way they do. Listening to those concerns is the key to helping them make informed decisions about their future.
When I talk to advisers about their clients’ concerns during emotional times, my goal is always to acknowledge that what they are feeling is normal, but that history shows reacting to emotions caused by short-term headlines isn’t the best way to make investment decisions; staying invested and making sure that your allocations are aligned with their long-term goals is. By showing clients how the plan can work over time to help achieve their goals, their worries may ease and they may stay in the market.
I believe the best way to help overcome behavioral biases is to rely on history. Everyone has seen some version of the studies about what happens to portfolio returns if you are out of the market during its best days.
Not being in the market during those days has a real impact on compounded returns. And that has a significant effect on achieving long-term goals.
History also shows us that, over the long term, diversification has worked.
Short-term headlines come and go. The latest investment fads eventually run their course, and new ones come along. Tried-and-true portfolio construction tied to the individual goals of clients, however, has stood the test of time. Helping clients manage their emotions and maintain the goals of the original plan are the keys to navigating behavioral biases.
Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance is no guarantee of future results. Talk to your financial adviser before making any investing decisions.
This material is intended for informational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product.
Endnote
- John Hancock Investment Management. n.d. “Emotional Rollercoaster.” Accessed February 10, 2026. https://www.jhinvestments.com/resources/all-resources/business-building/emotional-rollercoaster.