>> In a speech to Wall Street this week President Obama said when the economy crashed last year it took retirement accounts and investment portfolios with it.
>> 5 Trillion dollars of American's household wealth evaporated in the span of just 3 months.
>> Investor reaction to this crisis often caused more harm than good. We invited Harrison Hong, a Princeton professor who specializes in behavioral finance to our studio to explain.
>> If you were an investor and you slept through most of the Leman crisis you would have probably done better than somebody who was really really paying attention to the whole Leman thing.
>> This is because investors made two classic mistakes in the face of turmoil bell ringing they sold their stock holdings at the markets bottom and then missed out on the subsequent recovery.
>> One of the things that we see is that investors respond way too much to sort of what's happened in the past like when the markets run up they start building on a lot of risk, they put on much more into equities and then when the markets go down they tend to cut their positions dramatically.
>> So what should investors do next? For starters, Hong says don't make financial decisions based on the news or emotion, instead find an asset allocation that works for you and stick with it no matter what.
>> Not only think about kind of what the long run return is but just kind of what kind of risk you're really comfortable with as far as the loses you're willing to incur.
>> Realize that bubbles happen and plan accordingly.
>> When the market is doing really well you should if anything expect some type of a retrenchment, some type of a fall back on the market.
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>> And finally don't be afraid to get back in the game.
>> It's not a sensible strategy by any means to just be completely out of the market particularly I think kind of going forward as it looks like there's maybe potentially inflation down the line so you definitely don't want to be just sitting in US government bonds.
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==== Transcribed by Automatic Sync Technologies ====
