“The desire to act in a crisis is deeply embedded in our psychology. But investment behaviour experts warn that this instinct is our own worst enemy when it comes to money.”
“You see your portfolio falling in value and the natural thing to want to do is to protect it,” says Mr Norton. “You sell that asset that is falling in value and you feel better — almost immediately.”
The FT article here talks about making decisions based on how we feel. “Research shows investors who trade more frequently have worse long-term outcomes than those who trade infrequently or not at all. Investors who retreat from the market in a downturn rarely time their re-entry correctly, missing out on the recovery.” So you may say, I’ll do nothing. That only works if what you have is right!
Greg Davies of Oxford Risk notes that even if investors are feeling remorse about decisions made earlier in the year, they should try and think about this as one crisis among many they will live through. Plan for the next one, he advises. “A big downside of a crisis is that all this good advice is difficult to put in place during a crisis. You want to draft these rules so when you need them, they’re already there.”
Greg’s advice is good advice; it sounds sensible, yet do you actually do it? How do you prevent yourself from making the wrong financial decisions in the future? Greg Davies also talks about phone a friend before you make a decision. It makes sense to talk through your planned decision before you make that decision. I wouldn’t talk to your wealth manager or private bank as they have a vested interest in helping you make a decision that is right for them. You can’t really imagine they would tell you to sell your investments and go elsewhere with your money! It will never happen. Most people need help designing a plan to help them stop making poor decisions in the future, and someone to talk to when emotions are the highest. Yes, that’s why we exist.
The Wealth Coach, an independent financial advisory firm based in the UK. Nic Round, Chartered Wealth Manager.
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