So how do retail investors react in these conditions of uncertainty and what should you actually do?
Now we all know that the financial markets don’t like uncertainty; it makes them very jittery and that, in turn, causes high volatility which can cause investors to behave in different ways. My colleagues and I recently attended a Conference hosted by FEIFA (Federation of European Independent Financial Advisors) where we listened to a presentation by one of the world’s largest fund managers regarding investor behaviour. Using a research tool developed in conjunction with the University of Cambridge and with a sample size of over 2000 people they found nine types of behaviour biases. I want to focus on the top 3:
• Projection Bias
• Present Bias
Projection Bias is defined as “the tendency to falsely project current feelings onto future events
Present Bias is defined as “the tendency to prefer immediate gains over larger future gains”
Herdism is defined as “the tendency to do something because many other people do the same”
Now think – how many people do you know that tried to cash in on the property boom here in Spain in the late 1990’s and early 2000’s looking to build a property portfolio for their future (Projection Bias and Herdism)? Then we have the collapse in the property market and people were left in an “asset rich but cash poor” position.
What happened next? Well, there were a lot of people who completely cashed in their pensions by transferring to a QROPS jurisdiction that allowed you to do so at an earlier age then in the UK (Herdism and Present Bias). And then what happened? They had cash in the bank, but a massive impact on their future income when they stopped working.
These are just two examples on how investor behaviour can be influenced by bias and the long-term impact of decisions that are made without careful planning and consideration.
What you need to do now:
Quite simply, come and talk to us. By having a simple and relaxed but structured conversation over a cup of coffee we can:
• Clearly establish your current financial situation
• Discuss the reasons that you want or need to invest
• Explore your future plans and goals and not just take your stated needs at face value
• Ensure that your investment goals are consistent with your future income or estate planning needs
• Help you understand potential future returns in tangible terms in accordance to your attitude to risk
• Remind you that your needs are individual and may be different to other people
• But also benchmark your needs against similar people at later ages or life stages
Providing a suit of armour against “that man with the spade”
We can then prepare and present a solution that will ensure that your wealth is properly diversified and not reliant on a few sectors. There are lots of things happening in the world at the moment that are impacting the financial markets. And the reality is I think that for the foreseeable future we are going to be in a constant state of change and hence volatility. So, once you become a client of Blacktower, through careful consultation and regular reviews we will continue to support you and monitor performance, adjusting your portfolio where necessary.
If you have any questions, or concerns then please do not hesitate to contact me on +34 952 816 443.