20
April
2017

Emotional Investments can be dangerous

Many Investors let their emotions dictate their Investment decisions

The US Election last week was an example of how many investors let their emotions dictate their investment decisions. As we entered Election Day and a Trump victory started looking likely, the markets plummeted. The next day they recovered.

The results of the US Election are important. However, a change of President doesn’t make the top 200 companies in Australia worth 3% less than the day before.  The following day, cooler heads prevailed and the market bounced back.

If you held your investment strategy, and didn’t buy or sell any of your investments, then the increased market volatility had very little impact on your portfolio by the end of the week.

Unfortunately for many, emotional reactions can result in real losses. Those who sold-down growth assets that led to the market falling did so at the lower value. Once the markets recovered and they decided to buy back into the market, they were again paying full price for their shares.

Those who sold-down on Election Day and bought back the next day have turned what would have been a relative neutral situation into a real loss.

Over the last 30 years the Australian stock market has average returns of a little over 10%pa. Yet the average investor has earnt a little less than 3% in annual returns. If an investor put their money in the Australian stock market and left it for 30 years, they would have averaged 10%pa.

Trying to pick market trends and making emotional decisions like we saw with the US Election and Brexit earlier in the year, has seen the average investor seriously underperform the market.

One of the most popular clichés in the investment world is, “investment success is about time in the market, not timing the market”. This week, we again saw many investors lose out by straying from their long-term position.

The secret to investment success is not exciting, it is simply patience. Once you have chosen your investment strategy, stick with it.  You know in advance there are going to be negative years, bumper years and everything in between.

 

Over 100 years of stock market data indicates that, as long as you don’t get caught up trying to beat the market, and have a well-diversified portfolio, it is likely you will receive reasonable returns in the long-term.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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