Impact of Behavioral Biases on Investment Decisions

As a wealth manager at a reputable firm, you help clients navigate the complexities of investment decisions. One of your clients, a 55-year-old executive nearing retirement, exhibits a tendency to overly focus on recent performance trends of their investment portfolio, often making snap decisions based on short-term market fluctuations. This behavior can be attributed to overconfidence and the recency effect, which may lead to suboptimal investment choices.

Discuss how behavioral finance concepts, particularly the recency effect and overconfidence, influence investment decisions in wealth management. Additionally, provide actionable strategies that you might implement to mitigate these effects and help your client make more informed, long-term investment decisions.