Think markets are moody? How about investors?

The next step is for them to work with an advisor whose experience, business model, training and education allow clients to believe absolutely in their advisors’ objectivity and professionalism in managing their portfolios, he added.

“There is no behavior that is irrational around investing when we understand [clients’] underlying thoughts and beliefs,” said Rick Kahler, CFP, owner of Kahler Financial Group. “Every action may not be in our best interest, but it does make perfect sense when we understand what’s behind it.”

Getting facts straight

Helen Modly, CFP and wealth advisor with Buckingham Strategic Wealth, provides some facts and figures to help combat clients’ irrational fears.

“Human beings are not wired to be patient, long-term investors,” she said. “We are wired to respond to anxiety and fear by fighting or fleeing.

“Since there is no way to proactively ‘fight’ a down market, the urge to flee and protect our money becomes almost overwhelming,” Modly added. “We must recognize this anxiety for what it is, a physical manifestation of an emotional response.”

Here is some of the information she shares with clients:

• According to research from American Funds, all markets experience regular volatility, as follows:

° 5 percent market corrections occur about three times a year.
° 10 percent market corrections occur about once a year.
° 15 percent market corrections occur about every two years.
° 20 percent market corrections occur about every three and a half years.
° No one can predict when a correction will occur or how long it will last.

• Historically, bear markets are shorter than bull markets, as illustrated by First Trust.

• A large proportion of the total return of stocks over long periods comes from only a handful of days, according to a report by Dimensional Fund Advisors.

Once we become aware of these unconscious thoughts and beliefs, about 20 percent of the time, we can change them cognitively, he said.

“For example, we may not have enough of our portfolio in equities to meet the return we need for our retirement goal,” he said. “Once we understand the underlying belief is that, for example, the stock market is the same as gambling and we receive some information about how stock exchanges work — that the worst decline in any one year is 55 percent, markets tend to go up over a long period of time, etc. — we may be able to change our asset allocation into one that’s heavier in equities.”

However, the other 80 percent of the time, the additional information does not change the behavior, Kahler said, which means that the underlying thought and belief has either not been uncovered or modified.

“In that case, a person needs to go deeper into what has created the emotional block,” he added. “Psychologists call that finding the unfinished business. It usually takes working with a financial therapist to solve that puzzle.”

— By Deborah Nason, special to CNBC.com