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For Advisers, Psychology Matters As Much as Economics

Investment decisions can be greatly influenced by childhood experiences, especially those associated with a perceived sense of loss. 

By Javier Simon | October 13, 2016
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After spending the last 25 years serving as a wealth adviser to clients ranging from individuals to institutions, Chris White, a chartered financial analyst, believes that all sorts of investment decisions are influenced by much more than just market trends and numbers; he’s “seen firsthand that investing is as much an emotional experience as it is an analytical one.”

White explores the concept in his new book, “Working with the Emotional Investor: Financial Psychology for Wealth Managers.” In the book, he explains how peoples’ investment decisions and risk tolerance can be influenced by their upbringing and past experiences—especially traumatic ones that occur early in life.

“Childhood experiences obviously tend to have a large effect on the makeup of individuals,” White tells PLANADVISER. “Up until around the time a child turns eight, the world revolves around that child, he or she is the center of the parents’ attention, and can do no wrong. Then, something happens. Something breaks that, and this child realizes they are no longer the center of the universe. It happens to all of us.”

White says these breaking points can be marked by events such as divorce in the family or the loss of a loved one—or it can be something more nebulous. By drawing from his own experiences and the latest research in the field of neuro science, he says he “learned that these painful memories can be triggered during high-risk situations like the prospect of saving for retirement. Along with the memories of those scenarios also come the strategies used to address or avoid them.”

White says that during these high-stake moments, investors often tap into what he calls their “emotional templates.” He breaks these personality types into three categories: fixer, survivor and protector.

NEXT: Personality Traits and Investing