The emotions of investing

‘𝙏𝙝𝙚 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧’𝙨 𝙘𝙝𝙞𝙚𝙛 𝙥𝙧𝙤𝙗𝙡𝙚𝙢 - 𝙖𝙣𝙙 𝙚𝙫𝙚𝙣 𝙝𝙞𝙨 𝙬𝙤𝙧𝙨𝙩 𝙚𝙣𝙚𝙢𝙮 - 𝙞𝙨 𝙡𝙞𝙠𝙚𝙡𝙮 𝙩𝙤 𝙗𝙚 𝙝𝙞𝙢𝙨𝙚𝙡𝙛’ - 𝘉𝘦𝘯𝘫𝘢𝘮𝘪𝘯 𝘎𝘳𝘢𝘩𝘢𝘮 (𝘎𝘳𝘢𝘩𝘢𝘮 𝘢𝘯𝘥 𝘋𝘰𝘥𝘥, 1996)

 

 

Humans make poor investors. The ‘X’ (or reflexive, rather than 𝘳𝘦𝘧𝘭𝘦𝘤𝘵𝘪𝘷𝘦) system is an ancient part of the brain responsible for processing risk and fear, which plays a key role in motivation and reward-seeking behavior, and importantly in our aversion to risk. Useful when next to a lion rustling in the bush - less so when applied to making sensible long term investing decisions. 🦁

 

‼️Research by Morningstar shows a 'behaviour gap' of 1.1% per year in the US - around 15% of the overall growth seen in the 10 year period studied. Dalbar find similar results over the past 20 years.‼️

 

Sometimes, the best investment decision is doing nothing at all.

 

𝘉𝘶𝘵 𝘵𝘩𝘦𝘳𝘦’𝘴 𝘨𝘰𝘰𝘥 𝘯𝘦𝘸𝘴...

Vanguard suggest that financial planners can add around 3% per year in net value – with half of that coming from behavioural coaching (this broadly aligns with the figures presented above).

 

Sound advice can help close the gap between investor returns and investment returns.

 

 

 

𝘚𝘰𝘶𝘳𝘤𝘦𝘴: 𝘔𝘰𝘳𝘯𝘪𝘯𝘨𝘴𝘵𝘢𝘳'𝘴 𝘔𝘪𝘯𝘥 𝘵𝘩𝘦 𝘎𝘢𝘱 (2024), 𝘋𝘢𝘭𝘣𝘢𝘳 𝘘𝘈𝘐𝘉 2025 𝘙𝘦𝘱𝘰𝘳𝘵, 𝘝𝘢𝘯𝘨𝘶𝘢𝘳𝘥 𝘈𝘥𝘷𝘪𝘴𝘦𝘳'𝘴 𝘈𝘭𝘱𝘩𝘢 (𝘑𝘶𝘯𝘦 2020)