Unfortunately, as human beings we are not hardwired to be good investors. Especially during times of market turmoil, we naturally want to take action, switch to a ‘better’ investment and recover our losses as quickly as possible. Even worse, we may sell out of our investments completely and try and wait for the perfect time to jump back into the market. Unfortunately, nobody rings a bell when the time is right. The impact of this wealth destructing behaviour can be illustrated by our internal research examining the returns from UK based investment funds for the five years ending on 10th April 2017. Looking at the 20 top performing funds over the five- year period, the average investor received a staggering 2.2% per annum less than the returns of the underlying funds. The difference between investment fund returns and actual investor returns is known as the ‘behaviour gap’ and it is our job to keep this to an absolute minimum.
‘All of us would be better investors if we just made fewer decisions’. NOBEL PRIZE WINNER, DANIEL KAHNEMAN (BEHAVIOURAL FINANCE)
In order to close the ‘behaviour gap’, we:
- Have an investment process that is not based on trying to second-guess the market.
- Make sure that our clients are not taking any more risk than they can tolerate.
- Show our clients the best and worst returns for their chosen level of risk over the last few decades. Forewarned is forearmed.
- Ensure that our clients stay the course and stick to the strategy.
Although difficult when the media are screaming ‘this time it’s different’, in times of turmoil we’ll help you sit on your hands and reap the benefits.