Behavioral Biases in Wealth Management: Client Overconfidence and Loss Aversion

As the lead wealth manager for a high-net-worth client, you are tasked with reviewing the client's current investment strategy in light of the behavioral biases that might affect their decision-making. Your client has expressed an affinity for investing in tech stocks, often disregarding diversification principles due to a bias known as overconfidence. Additionally, they have shown tendencies of loss aversion, leading them to hold onto underperforming assets. Your objective is to create a tailored investment plan that mitigates these biases and enhances the client's overall investment strategy.

In your essay, analyze how behavioral finance concepts apply in this context. Discuss strategies to recognize and mitigate the impact of overconfidence and loss aversion in the client's investing behavior. Additionally, propose specific adjustments to the portfolio that consider these biases while aiming to meet the client's long-term financial goals. Support your analysis with relevant behavioral finance theories and real-life examples.