Bad market performance, government lockdowns, global epidemics and loadshedding aren’t what threaten our investing and financial behaviour.
Our biggest threat is ourselves.
Studies have shown that people improve substantially in financial and investment decisions as they get older. When we are young — and perhaps less secure in our financial situation — we have a tendency to be controlled by emotional biases; strong impulses that can be detrimental to our investment habits.
Behavioural economists refer to some typical flaws that are commonly seen in investment decisions as failures of rationality. In order to achieve long-term financial goals, it is, therefore, important to identify and wrestle with some of our personality-driven investing mistakes.
Even more so when we’re going through a crisis and it’s confrontational!
It’s hard, but it’s not impossible.
The first step is to accept that a problem exists in the way that we approach our decision making – before we sabotage ourselves. It is then a question of devising a set of strategies to control, or at least mitigate, harmful decisions.
It’s important to be kind to yourself at this point – sabotaging your future self DOES NOT mean overextending yourself now to keep up with premiums, but it also means not selling off investments out of fear if it’s not in your best interest. The goal is to slow your decision process down so you avoid making errors you will regret.
According to a survey conducted by Barclays Wealth, many wealthy investors realise their tendency to make emotional decisions, and would be happy to have some help dealing with certain issues.
The ability to exercise control plays a vital part in financial decision-making, especially when investment climates can be volatile, confusing, and nerve-wracking. It is important to feel confident in your financial plan, so that you can resolutely commit to whatever investment strategy you decide will benefit your future self best.
For example, research suggests that there is a psychological phenomenon referred to as the trading paradox. A high percentage of investors feel they need to trade frequently in order to maximise their investment gains but, at the same time, many of the same investors feel that their overall returns suffer because they trade too much. Even though certain investors have this realisation and see the downfalls of their actions, they still give in to emotionally-triggered temptations and often miss out on optimal returns as a result.
Behavioural coaching, in this instance, could help someone to focus on methods of changing this behaviour for good.
Behavioural coaching employs a range of professional techniques to help you to make changes to certain patterns of behaviour. Behaviour comprises actions and reactions, and behavioural coaching has been defined by the Behavioural Coaching Institute as “the art of facilitating the learning and development of an individual, so as to increase their effectiveness and happiness”.
It emphasises that much of human behaviour is, in fact, learned, and that all behaviours result in positive or negative consequences for the individual and those around them.
This model of coaching, therefore, involves identifying and measuring certain learned behaviours and their impacts. To do this requires an exploration of core values and motivations, as well as assessing covert behaviours (such as anxiety or self-defeating beliefs) in relation to overt actions (such as public speaking).
Once you have identified an issue and sought professional guidance in establishing a personal set of effective coping mechanisms, it is important to consistently exercise your newfound good habits. These need to be practiced on an ongoing basis, and regular monitoring and evaluation will help you to achieve long-term success.