Emotions and fads thwart investors

It is only natural for individuals to feel emotions when they invest and when they review the performance of their investments. We quite understand that all investors ideally want to receive high returns, but we also know from our years of experience that relatively few investors have the patience or willingness to take the risk necessary for the highest returns. As well as that, we have all witnessed the investment fads that promise risk-free high returns and we have learned that this perfect combination of risk versus reward is impossible to achieve.

It as important for investors not to allow their emotions to dictate investment decisions, because emotions can often be giving the wrong signal. Markets and economies move in cycles and naturally attract a fair amount of human emotion as they evolve. An investor’s behavioural response to market swings can lead them to buy and to sell at the most inopportune times. Such an emotional response can thus be highly detrimental to the performance of an investment portfolio.

Emotion may trigger misjudgement
With emotions driving investment decisions, it is likely that the investor will make major misjudgements about buying and selling. The emotion-led investor will probably be most inclined to invest during the period of thrill and euphoria that may precede a market downturn. They may be equally likely to disinvest when feeling the panic and depression that can prevail when markets are near rock bottom but perhaps likely to recover as the economic cycle takes its course.

So, we think it important to resist emotional responses, have a long-term investment horizon and stay the course. Our advisers work with you, the client, to create an investment portfolio that is specific to your own needs and designed to achieve your financial objectives. Your portfolio will be built on sound investment principles that have stood the test of time and will not be based on the latest investment fad.