When it comes to investing, there are plenty of mistakes you can make.
A new report from Asset Risk Consultants, which looked at investments made during the past 10 years, found that reactionary tinkering with portfolios has resulted in investor losses.
They studied 50,000 portfolios and found “strong evidence that private client and charity portfolios have tended to adapt their risk profiles in reaction to financial market conditions to their detriment.”
What does this mean in practice?
Investors have a nasty habit of experiencing investment losses and then switching into lower risk portfolios.
They then move from lower risk to higher risk portfolios when market conditions improve, only to miss out on the bulk of those market gains which have already taken place.
In our experience, this sort of poor portfolio management is often magnified when investors hand their money over to a discretionary fund manager. Portfolios are more actively managed than they need to be, with risk profiles changing depending on market movements.
A better approach to investing money, which works better in our view with an advised portfolio, is to take the long-term view and avoid reacting to short-term market movements.
We have written before about how investment advice can add value to portfolio returns. Financial advice helps investors avoid the temptation of trying to time the markets or chase performance.
Financial advisers have a role to play as behavioural coaches; acting as an ’emotional circuit breaker’ and ‘circumventing clients’ tendencies to chase returns or run for cover in emotionally charged markets.’
This was the finding of some research carried out recently by Vanguard in the US.
Successful investing is the result of removing emotion from important investment decisions, sticking to a long-term plan and avoiding the temptation to chase returns.
If you would like to find out more about our approach to investment advice, please do get in touch.
