I strongly believe that one of the key functions of a Financial Planner is to provide discipline for investors.
The discipline to stick with a strategy when the only thing wrong with it is that markets aren’t at that point providing the desired results.
There have certainly been studies which have clearly shown the propensity for investors to create negative or inferior returns for themselves through a compulsion to change things.
The completed studies have been on the share market. Into an investment goes the investor as optimism abounds and out, they go as market sentiment changes, and they focus on short term losses.
In making the original decision to invest in a portion of growth investments the investor may have clearly determined that their goals were some years down the track and that they wouldn’t need access to the funds in the meantime.
But then the market doesn’t do it’s thing in the short term, goes down, and the investor thinks “if only”.
“If only I’d had more money in property”, Or even more dangerously “interest rates were 5% last month - if only I’d had my money in the bank”.
It’s interesting that if a local retail shop has a sale, it’s a good time to buy. When the share market is having a sale, many investors stay away and then step in when prices are going up.
That’s an interesting way to approach making a profit.
Warren Buffett, one of the richest men in the world as a result of his share market investment skills has said “Our capital markets are simply a reallocation centre. They relocate wealth from the impatient to the patient”.
An interesting thought.
And how is patience created? Either through ignoring the process altogether or by learning and understanding.
The result of knowledge may not be total comfort with negative movements in the share market but at least understanding will help provide the patience which will lead to investment success.
