When it comes to investors not achieving the returns they desire, it is usually because of one major reason, Themselves!
Warren Buffett once observed: “The stock market is a device to transfer money from the impatient to the patient.” Investors are emotional beings, and these emotions can be a massive disadvantage when it comes to investing.
Typical behavioural types include:
- Overconfidence – Overestimate your own skills and predictions for success.
- Conservatism – Hard time changing existing beliefs even when new information comes to light.
- Regret aversion – To feel the pain of regret for having made errors, even small errors.
- Herd behaviour – Conforming to the majority and not thinking for themselves.
- Anchoring – Basing expectation on first information received whether that is correct or not.
The table below shows the financial impact emotions can have on returns over a variety of investment terms.
| Term | Average Equity Investor Return | S&P 500 Return | Difference in Returns |
| 5 Years | 7.79% | 11.70% | -$28,377 |
| 10 Years | 9.43% | 13.56% | -$92,417 |
| 20 Years | 4.25% | 6.06% | -$94,474 |
| 30 Years | 5.04% | 9.96% | -$1,288,843 |
* based on $100,000 investment on day 1 and invested for the full term.
** source 2020 QAIB report by Dalbar
The main reasons for this difference in returns is investors making the wrong decisions at the wrong time. To succeed, an individual investor needs to be very disciplined or may find using a professional adviser can help limit the impact of emotional investing.
It is very difficult to beat the markets even for the pros and when investors try to do this the results can have negative impacts on returns resulting in goals not been achieved.
Using a professional to help you make key decisions at key moments will have benefits for many years to come.
Author: Ben Buckley
Tel: +971 56 955 1328, +353 86 3345684
Email: [email protected]
