It’s the job of a nice calm adviser to save the average market plunger from themselves..
IT has always been a tenet of faith in markets that individual investors are the financial equivalent of shark meat, forever bamboozled by news flow and buying high and selling low. The majority of these investors do not have financial advisers.
The classic view is that small investors are far too prone to being overwhelmed by news flow, selling out after plunges and buying after stocks or markets surge. This is known as the “behaviour gap,” that margin between a market-neutral outcome and what we actually achieve in our fumbling.
Fixed income investors fare even worse, perhaps because the bond market is a port of refuge during periods of market volatility. Over 20 years the average investor has made just 0.94pc annually, underperforming the Barclay’s Aggregate index by 5.56 percentage points.
Interestingly, the average equity fund investor, for all his or her supposed foibles, actually managed to outperform systematic investors over the past 20 years, according to the study.
Advisers can really add value by changing behaviours among their clients, by educating them to the risks and rewards so that their clients make better provision for the future.
It may be that cooling down the enthusiasm of investors when they are hell-bent on buying or selling isn’t really that much of a value generator. That doesn’t, however, mean that there aren’t client patterns of behaviour which could profitably be changed.
Undersaving, based on an overly optimistic view of either future earnings or future investment returns, is one area, but advisers who are brutally honest about this have always risked losing their clients to other firms selling pipe dreams.
(Article courtesy of Irish Indo – James Saft)
New Star FM View – Honesty with our clients & educating clients as much as possible is at the heart of all we do….