Imagine you are a portfolio manager advising a private client, Ms. Johnson, who has a significant portfolio consisting of both equities and fixed-income securities. Ms. Johnson expresses her concern about market volatility and the potential for loss, which has led her to have a more conservative outlook on her investments. At the same time, she has very specific financial goals for retirement and legacy planning, which require capital growth over a long period.

Discuss how Behavioral Portfolio Theory can be applied to address Ms. Johnson’s situation. In your essay, analyze how her behavioral biases may affect her investment decisions and suggest how you could structure her portfolio to align her behavioral tendencies with her financial objectives. Make sure to include considerations of mental accounting, loss aversion, and the framing effect.