In the past decade we’ve seen, and felt, every facet of the investment experience.
We’ve hit the highs, crested the waves, despaired of the plummets and slogged through the lows as our portfolios appear to have behaved like naughty children, high on blue smarties!
In addition, the knowledge around investing has exploded. We have more (often conflicting and confusing) data than ever before and we have become psychologists learning about investor behaviour and why we think the things we think and do the things we do when it comes to our money.
It’s been a lot to absorb, but here are 4 things I’ve noticed:
Human behaviour is still human
The traits that helped us survive as a species — choosing things that bring us security or pleasure and running from things that cause us pain—make us rotten investors. Our brains struggle to adapt to a world where delaying gratification and dealing with pain are part of the package. We want to feel good now, so we buy high. We want to stop hurting today, so we sell low. This isn’t news, but it’s fascinating how little we’ve changed since the tulip bulb market crash burned Dutch traders in the 1600s. We just can’t help ourselves – following the herd, listening to the poorly informed, letting our heart rule our heads – we are mere human beings!
Money = feelings
Money is emotional. We’re not talking about spreadsheets and calculators. Money is about people’s fears, their hopes and dreams, their goals and values – their life! So, are we really surprised that things tend to go off the rails when we focus on the spreadsheet numbers but don’t speak of the things that matter most to us and our families? We’re more likely to talk about our sex lives and our mental health, than we are about our money. We like to think we’re rational when it comes to money, but it’s the rare investor who only sees money as pounds and pennies. We let our emotions take over and often make financial decisions that don’t stand up to sensible scrutiny.
Financial planning isn’t a science
There are plenty of people who would like to tell us that they have a tried and tested formula for successful investment, whether it be in property or shares. Some of these schemes will work for some people for some of the time, but they are not infallible and often bring with them a false sense of precision and security.
During the past few years, we’ve seen an explosion of evidence-based investing advice. Of course, it’s far better than making financial decisions based on friends and stories. But we need to remember that financial planning isn’t hard science and ensure that our financial decisions are made in support of our hopes for the future and to deliver our emotional and aspirational goals.
Don’t get buried in the noise
Investors live in an information circus. Every theory, every tool, every guru has their own centre ring of noise. Social media means that we now get everything at full blast and at top speed. A financial deluge that makes people feel inadequate and insecure. To be clear, there’s lots of valuable information about how to invest, budget, and even make more money, but investors are not necessarily better off because the volume can overwhelm even the savviest of individuals. We need to find a way to hit the mute button so we can concentrate on what is important to us and use our resources to best effect.
We really understand how money works for people, how it makes them feel and how it can be used most effectively to get them where they want to be. If you want us to help you make the most of your resources (not just your money) do call us for a friendly chat.