Your financial advisors do know best

The biggest risk to any investor’s money is often their own behaviour.

“Investors know they should hold diversified portfolios, but many chase past performance and end up buying funds too late or selling too soon,” Morningstar noted recently. “As a result they suffer from poor timing and poor planning.”

Mostly this is a result of making emotional decisions or succumbing to personal biases.

Investors also face behavioural factors such as recency bias, when they start to believe that whatever their investments have done in the recent past can be extrapolated into the future.

Historically, this behaviour isn’t something many financial advisors have paid attention to. But increasingly advisors are recognising that if their role is to help their clients achieve the best investment outcomes, that must involve behavioural coaching.

Information overload

Investors are constantly exposed to large amounts of information that could influence them. Day-today market or share price movements, economic figures and political news can all impact an investor’s outlook.

“This day-to-day abundance of information buries them.

“What we need to do is drive the right behaviours and help them navigate the maze of investing,” says Morningstar Investment Management’s Matthew Radgowski.