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Based on insights from a series written by Amanda Levis, PhD, Center for Analytics & Innovation (CAI)*, Advanced Experimentation Team.


No individual or group can know the events of tomorrow before they happen, yet people have a tendency to look back and think outcomes were easily predicted and could have been acted upon. It's known as 'hindsight bias'1 and it's a real challenge every adviser faces with their clients.

Your client's 'future self' knows if the FTSE All Share is at the bottom now, or if it has further to go. They know which mutual funds are going to outperform their peer groups and which asset class will deliver the best returns. With the benefit of this hindsight, knowing which mutual funds have outperformed their peer groups or which asset classes have delivered the best returns, investors will scrutinise decisions and advice given during periods of uncertainty and question why advisers did not make the optimal decision at the time.

Of course, it's impossible to predict and time the market to perfection consistently over time, so it's inevitable that clients will at some point look back and judge their adviser with hindsight bias. While this is unavoidable, there are some things that advisers can do today that will help your client look back more considerately in the future.

Reinforce your client's investment identity

Find ways to remind your client what kind of investor they have chosen to be. Consider developing an investment charter or mission statement (if you haven't already) that clearly articulates that smart investing over time focuses on long-term returns and that sometimes good decisions can lead to temporary periods of disappointment or frustration. This may be an opportunity to have them re-commit to such a philosophy and record this commitment for future reference.

Normalise feelings of regret; they are expected

Investment regret is inevitable, but it doesn't have to lessen the trust your clients have in you. The sign of a good investment strategy isn't an absence of regret, it is an expectation that feelings of regret will occasionally arise and a commitment not to act on them. Acknowledge their frustration and provide examples of how other clients are also experiencing it — this may help soften the emotional reaction to financial losses.

Acknowledge uncertainty

When you and your client are choosing between a few different options, make a point to record the uncertain value of the options waived. For example, what events could happen that would make one of the waived options desirable (in retrospect)? This can help remind your client that your agreed-upon strategy took into account the many possible worlds that might unfold. You will also be able to clearly distinguish the information that you knew then from what you know now.

Unlike many other psychological tricks, there's no surefire way to beat hindsight bias. It will arise in one way or another after periods of uncertainty. By laying the groundwork and establishing the inherent uncertainty involved with creating an investment strategy, including the likelihood of periodical losses, advisers can future-proof their client relationships and strengthen their trust in you as an adviser.


Ulrich Hoffrage & Rüdiger Pohl (2003) Research on hindsight bias: A rich past, a productive present, and a challenging future, Memory, 11:4-5, 329-335

*The Center for Analytics and Insights (CAI) supports Vanguard's analytics and research needs. The CAI produces advanced analytics ideas and solutions, performs and synthesizes market and usability research, and promotes analytics enablement across the enterprise.

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Important information

This document is directed at professional investors and should not be distributed to, or relied upon by retail investors. 

This document is published by Vanguard Asset Management, Limited, based on research conducted by Vanguard Group Inc. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments. It should be noted that it is written in the context of the US market and contains data and analysis specific to the US.

The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

The opinions expressed in this article are those of individual speakers and may not be representative of Vanguard Asset Management, Limited.

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© 2020 Vanguard Investments Switzerland GmbH. All rights reserved.