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Self-defeating Financial Behaviours We All Experience – How Should We Act Instead?

When making day to day financial decisions, in spending as well as investing, we often tell ourselves what we want to hear and act in ways that make us feel safe. However, these can work against us in the long term. Here are eight common behaviours that seem sensible initially but may hinder us the most.

‘The news said investing in stocks and shares is too risky’

News outlets’ goal is to sell news, not help us make better life decisions. Unfortunately, negative and shocking news sells more than positive guidance that can help us. We are told continuously that market crashes are imminent. Real historical data shows that markets are falling 25% of the time and rising 75% of the time. We must take advantage of this. In the current climate, keeping your money in cash will ensure the purchasing power of your money is decreasing 100% of the time due to inflation.

‘I don’t want to invest yet; I want to wait for the markets to become clearer.’

It’s understandable as humans to feel unsettled by volatile markets. We don’t want the value of our hard-earned money to depreciate. However, history will tell us that we can benefit from the ups and downs in the market. When markets are down, they are effectively on sale. We can buy more shares for our money. When markets rise again, we benefit more from the positive return as we have purchased more shares with the same amount of money.

‘I live for today, who knows what will happen tomorrow’

This phrase can permit you to make an impulse purchase. While we should live fulfilled lives in the present moment, we can also plan for our future by making considered choices.

‘I want to recover my losses’

This is, of course, natural human behaviour, to the delight of all bookmakers. When saving and investing, we should remind ourselves that a loss is not a loss unless we decide to sell. Changing our strategy during market declines to attempt to recover unrealised losses can lead to risky decisions and detrimental results.

‘My company (or this stock) has been good to me’

Many of us have an emotional connection to individual companies or shares. For example, if you have worked for a company for a long time and hold shares in that company or if you have inherited shares from a loved one, which may make us reluctant to sell them. Holding too large a proportion of your wealth in one company is extremely risky. By all means, if you have an emotional connection to a company, hold on to some of it. But ensure it only represents a tiny portion of your total portfolio.

‘My uncle’s neighbour’s friend told me to invest in …’

We often hear information from others and absorb how it is relevant to ourselves and apply it as a generalisation to everyone else. Even if we hear advice and tips that are correct for the person imparting their knowledge, individual circumstances are different. If in doubt, seek professional advice on your situation.

‘I want more certainty in investment returns’

Wanting confidence in your investment strategy is a smart decision but wanting certainty in returns will only lead to disappointment. We must understand that past growth figures are not indicative of future performance, and no investment adviser can guarantee returns in the stock market. What we can control is the amount we invest each month and year, which will make up a more substantial proportion of our wealth than the investment return it attracts. Having a long-term strategy that focuses on evidence-based, low cost, diversified portfolios will give you the best chance of returns behaving as expected over the long term.

‘I’m too busy to think about this’

As we accumulate various bank accounts, savings accounts and pensions over our lifetime, unfortunately, a hefty amount of paperwork also comes along with it. It can be too easy to neglect this and take actions that we can control, such as costs, and whether your current arrangements are still appropriate for you.

We are all susceptible to experiencing the above thoughts and often it takes outside view to understand our behaviours and stay on track.

A significant role that an advisor plays in life-centred financial planning is to keep you accountable to good investor behaviour and ensure you remain on track to hit your financial & life goals. You may have gone it alone up to this point but it’s never too late to seek proper advice.

Contact Pyrmont today to make a change.

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