The Conference Board reported that its Consumer Confidence Index dipped to 104.7 in March, though the outlook is improved year over year. Echo Wealth Management Financial Advisor Echo Huang joins Yahoo Finance to give insight into consumer confidence, investment psychology, and what investors and consumers should know about saving money to build wealth.

Huang reminds clients that consumer confidence is short-term data, encouraging them to diversify across asset classes: "Right now is not as bad as a year ago. Of course with a short-term, investors should be still looking into the obviously the stock market valuation and I believe right now, the S&P index (^GSPC) valuation is relatively full. May not be extreme, but it's about 20. So, in my mind for clients, I would advise them for the money that they need to withdraw for the next five years, they really shouldn't have the money in the stock market. Especially when the valuation is relatively high. "

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: Now, the consumer confidence for the month of March, that came in at 104.7. That fell short of Wall Street consensus expectations but signals that the consumer remains strong despite sticky inflation. And confidence certainly matters, especially in your path to even smarter spending decisions.

With the right attitude, anyone is wired for wealth. At least, that's what our next guest says. So let's bring in Echo Huang, who is the Echo Wealth Management financial advisor. Echo, great to have you here with us on the show.

Let's begin this conversation and discussion just around how consumers can start to really implement better spending strategies that are best for their financial circumstance or situation.

ECHO HUANG: Hi, Brad. I'm glad to be here. For consumers, based on the recent data, actually their expectation index has declined just a little bit but a lot better than a year ago. So consumers right now are feeling a little bit, I think pessimistic in the short term. But I think in the long term, if they manage their behavioral finance better, they can start. What I would suggest is definitely start with their own circumstance because the indicator alone is not enough.

They need to look at more than just a little bit of the indicator. They need to manage their emotion, especially the emotion no biases and cognitive biases. So, for example, overconfident investors may trade excessively, and that is not a good thing, actually. So they need to find out how to manage that emotion and avoid trading excessively and destroy their own return.

Another bias I want to mention is investors sometimes they have the regret-averse bias. They may have problems selling a stock that has climbed recently. They try not to sell the really hot investment and to avoid the regret.

I think the best way to start building wealth is manage behavioral biases and then also secondly make sure you create your own personal financial plan based on your own personal goals, time horizon, and the market condition because it's really important, I think, for everyone to obviously have emergency fund and have a budget. Very importantly is having a budget that they can work and review and adjust.

I would suggest everyone have five-year cash flow plan because it's much easier for them to be able to see where the money is coming from and how they are spending, and saving, and invest with long-term perspective.

BRAD SMITH: And Echo, just further coming back to the data because we were really focused in on what this data signals, not just about the consumer right now but to your point how we can adequately plan going forward from here, and it was interesting within the Conference Board data they mentioned that consumers remained concerned with elevated price levels, which predominated some of the write-in responses.

So in terms of making sure that there are little decisions that add up to big results that consumers can make on a daily basis, where do you typically advise some of your clients begin?

ECHO HUANG: I would definitely advise clients that they need to look at this as a these are the short-term data, obviously, and the Conference Board releases every single month. And right now is not as bad as a year ago. Of course, for the short term, investors should be still looking into the obviously the stock market valuation. And I believe right now, the S&P index the valuation is relative, for may not be extreme, but it's above 20.

So, in my mind, for clients, I would advise them for the money that they need to withdraw for the next five years they really shouldn't have the money in the stock market, especially when the valuation is relatively high.

BRAD SMITH: That's great.

ECHO HUANG: Yeah, I would like a client to make sure that they have a strategy that focuses on diversifying across asset classes and geography and sectors so that they are not surprised by the risk they are taking. And they don't want them to act based on the daily news about recession. There's still a potential for recession, but I do not want people to go and read it and say, well, the index is below this number.

May said no recession when it's below this number, but we still need to build up the confidence by creating the plan. And you don't need to work-- do it by yourself. I think investors should definitely counsel trusted financial advisors to develop their plan and help them adjust the investment plan based on their own situation and also market conditions.

BRAD SMITH: And just very lastly, we only have about 30 seconds left here. But as you were mentioning here, it is the perceived likelihood of a US recession that's perhaps some of that long-term or one of the larger implications that could hit on confidence. How can people maintain confidence in their own spending habits and their own budgeting despite that perceived likelihood?

ECHO HUANG: Yes. Definitely celebrate small wins. Review their own situation. Set aside a goal saving monthly. If they're able to monitor that, and cut out some discretionary spending and focus on long-term saving and also short-term emergency fund over time with the plan, they are more likely to succeed.

And I believe that by planning right now to gain confidence to own their future and certainly people can check out my book "Own Your Future" on Amazon on different steps to build financial confidence and clarity.

BRAD SMITH: Echo, thank you so much for taking the time here today. Echo Huang, who is the Echo Wealth Management financial advisor. Good to see you.