Complacency- Not a Wise Investment Strategy

by Jeffery A. Keill, CFP, CIM, FMA, FCSI, CEA

During the golden stretch periods of market growth, stock will rise and portfolios will swell. This is generally on the back of some economic headlines brimming with optimism - or at least reduced pessimism. These robust times of growth can be exhilarating and deceptive for both new and seasoned investors. Following these run-ups, Investors can feel a sense of validation and confidence in their choices. Rightly so, but it can lead to horrible outcomes. Beneath the surface, a subtle but powerful force begins to take hold: complacency. Part of our commitment to clients is to recognize these periods and help people understand the difference between long-term investing and complacency.

The Allure

As markets continue forward over months or even years, it becomes very natural for individual investors to forget the impact of volatility and risk with investment assets. Good times never last forever. This short-sightedness is often reinforced by continued tangible gains and the positive experiences. As portfolios grow and time passes, the memory of past volatility fades. As humans we are wired to act on patterns regardless if its upward/ positive or downward/ negative movements.

Important Psychological Biases to Keep in Mind

• Recency Bias: Investors tend to overweigh recent events when making decisions. When things have been bleak, the future will continue to be bleak and when things are going well, things should continue to do well. After an extended period of positive returns the pain of the past is quickly forgotten and continued growth becomes a default.

• Confirmation Bias: Hearing stories on the news or hearing other people who have the same success can validate your feelings and provide misleading guide to the future.

• Herd Mentality: This collective thinking is what will drive markets higher or lower based on the herd’s mentality. When everyone appears to be profiting, it feels safer to follow the crowd.

Warning  Sign to Watch out For

Investor complacency leads many investors to dramatically underestimate risks. Diversification as a way to reduce or manage this unsystematic risk is so often abandoned at this stage.

How K&A Protects Clients Against Complacency

You may think long-term buy and hold is a complacent investing strategy. It surely would be if our Team was focused on being diligent along the way. Maintaining a longer term perspective does not mean to “set-it and forget-it”. Our long-term views continue to exercise a focus on process, regardless of bad markets or great markets.

• Review: We review our portfolio’s for our clients consistently.

• Rebalancing: Our portfolios maintain a mix of assets that help protect against overexposure to market swings. As markets change, we rebalance to keep risk lowered.

• Staying informed, Not Overconfident: Our Wealth Advisors read a diverse range of view points and remain aware of economic shifts, investor appetite, and a pulse on the consistent noise that distracts many investors from achieving long term success.

Conclusion

Extended periods of market growth are expected even if they are seldom predictable. They are something to celebrate, after all, investment returns is the show that you enjoy by paying the volatility price. With that said, complacency is not a successful investment strategy. By understanding the psychological and economic factors that fuel complacency, our clients with our Team of Wealth Advisors remain vigilant, disciplined, and prepared for whatever the markets may bring- rain or shine.

Posted October 10, 2025