A Barclays Wealth study found that people improved substantially in investment decisions as they got older. When people are young — and perhaps less secure in their financial situation — a tendency has been recognised to be controlled by emotional biases that can be detrimental to investment habits.
Behavioural economists refer to some typical flaws that are commonly seen in investment decisions as failures of rationality. In order to achieve long-term financial goals, it is, therefore, important to identify and wrestle with some of our personality-driven investing mistakes.
This can sometimes be harder to achieve than you might think, but it is possible. The first step to overcoming an obstacle is to recognise that a problem exists. It is then a question of devising a set of strategies to control, or at least limit, bad decisions. According to the survey conducted by Barclays Wealth, many wealthy investors do realise their tendency to make emotional decisions, and would be happy to have some help dealing with certain issues.
The ability to exercise control plays a vital part in financial decision-making, especially when investment climates can be volatile, confusing, and even nerve-wracking. It is thus important to feel confident in your financial plan, so that you can resolutely commit to whatever investment strategy you decide.
For example, research suggests that there is a psychological phenomenon referred to as the trading paradox. A high percentage of investors feel they need to trade frequently in order to maximise their investment gains but, at the same time, many of the same investors feel that their overall returns suffer because they trade too much. Even though certain investors have this realisation and see the downfalls of their actions, they still give in to emotionally-triggered temptations and often miss out on optimal returns as a result. Behavioural coaching, in this instance, could help someone to focus on methods of changing this behaviour for good.
Behavioural coaching employs a range of professional techniques to help you to make changes to certain patterns of behaviour. Behaviour comprises of actions and reactions, and behavioural coaching has been defined by the Behavioural Coaching Institute as “the art of facilitating the learning and development of an individual, so as to increase their effectiveness and happiness”.
It emphasises that much of human behaviour is, in fact, learned, and that all behaviours result in positive or negative consequences for the individual and those around them.
This model of coaching, therefore, involves identifying and measuring certain learned behaviours and their impacts. To do this requires an exploration of core values and motivations, as well as assessing covert behaviours (such as anxiety or self-defeating beliefs) in relation to overt actions (such as public speaking).
Once you have identified an issue and sought professional guidance in establishing a personal set of effective coping mechanisms, it is important to consistently exercise your newfound good habits. These need to be practiced on an ongoing basis, and regular monitoring and evaluation will help you to achieve long-term success.
Your commitment to addressing any unhealthy feelings and unproductive behaviours should help you to attain SMART financial goals — S (specific), M (measurable), A (attainable), R (realistic) and T (time-based) — and be your own best coach.