Behavioral Biases and Wealth Management Strategy

As a portfolio manager, you are tasked with developing a wealth management strategy for a high-net-worth client, Emma, who has expressed concerns about market volatility and the emotional toll of investing. She is particularly sensitive to the losses experienced in her previous investments during downturns, leading to her avoidance of equities altogether in her current portfolio.

Your task is to explain the influence of behavioral biases on Emma's investment decisions, specifically focusing on loss aversion and overconfidence. Discuss how these biases can be addressed in your wealth management strategy and suggest appropriate asset allocation methods to accommodate her emotional responses while still aiming for long-term growth.

Additionally, provide recommendations on how to communicate effectively with Emma to ensure she remains engaged with the investment strategy, thus limiting the negative impact of her biases.