Behavioural Finance: A Clue To Stunning Growth

Behavioural Finance: A Clue To Stunning Growth
Las Paz Mexico by Julian Cohen. Why?

Understanding Behavioural Finance could make you savvier when it comes to growing your SIPP

Being Mindful Of Behavioural Finance Could Prevent You From Losing Money

It Could Pay You To Learn About Behavioural Finance

The study of Behavioural Finance has only been formally recognised over the past 40 years or so.

It’s the notion that having a deeper understanding of how the mind works and how emotional biases can affect financial decisions could help you to avoid costly investment mistakes.

Recognising And Avoiding Behavioural Finance Biases

It seems many investors squander their hard-earned money because they act on sentiment, not sense, when it comes to investing.  Research shows people often make basic errors when it comes to investing which could have been avoided if they had stripped the emotion out of their decisions.

According to many of the world’s most respected investors and academics, the majority of this heartache is caused by the human brain and the fact it’s not wired correctly to deal with stockmarkets.

Over the past few decades, many experts in the field of Behavioural Finance argue the complex and highly emotional process of staking our financial future on a portfolio of companies triggers the reflexive system of the human brain.  It prompts investors to take irrational decisions, including panic buying and selling shares, overtrading, refusing to budge on pre-conceived ideas and blindly following whatever we’re told to believe.

Behavioural Finance hasn’t been lost on the big name investors of past and present generations. The likes of Warren Buffett, founder of Berkshire Hathaway, are known for devising various unconventional strategies in a bid to become detached from the emotional rollercoaster of equity investing.

But while keeping one’s emotions in check sounds like a fairly simple task, countless stories of people continually getting burnt by giving into them indicates few in the game have been sufficiently able to master what the experts frequently refer to as the eight basic rules of investing.

Basic Rules Of Investing

Rule 1: Don’t Fall In Love

Rule 2: Don’t Buy Flavour Of The Month

Rule 3: Don’t Be Dogmatic

Rule 4: Learn From Your Mistakes

Rule 5: Avoid The Crowd

Rule 6: Don’t Think You Can’t Lose

Rule 7: Don’t Obsess Daily

Rule 8: Nothing Is A ‘Dead Cert’

Increase Your Investment Success By Understanding Behavioural Finance

To discover more about Behavioural Finance, and how the eight basic investment rules work in relation to it, read an excellent article and watch a short video featured on FTAdviser.  Click the blue button below.

Behavioural Finance

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Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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