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There are a great many enjoyable aspects to being a financial adviser. Building a rapport with clients, helping them to set goals and, even better, to achieve them is what keeps many of our advisers here at Infinity motivated and happy in their work. However, as with any job, there are also some challenges.
In a recent global survey of 300 financial advisers, 90% of respondents said that the top challenge over the coming year will be dealing with their clients’ emotional reactions to market movements. In comparison, just 6.4% of investors believed that putting their emotions aside could enable them to make better investment decisions. A clear case of differing opinions!
Take it from us, investors who make decisions based on emotions are less likely to realise their long-term financial goals than those who act in a more rational way. Here are three important rules we follow when creating a portfolio which take the emotions out of investing:
We work closely with our clients to set very clear investment goals which are independent of the prevailing market conditions. For example, if we are working with a client on their retirement plan, we will define their goals based on their expectations of retirement income and the number of years they have left to save. Clients who keep on track with their investment plan will feel a sense of achievement even if they have underperformed compared to the markets in general. Of course, our aim is always to maximise the potential of our clients’ investments but we also need to….
It is essential to balance the required or expected return with an acceptable level of risk for each client. All investors must consider and work out their tolerance to risk and we always discuss this in detail with our clients and offer advice if necessary. A young professional earning a decent salary will be able to afford higher risk investments than an investor approaching retirement. Each client is unique and it is our job as financial advisors to plan an investment portfolio suited to each individual.
Whilst we encourage our clients to take a healthy interest in their investments, we advise against checking on progress several times a day and discourage our clients from reacting to the bombardment of news reports, comments and opinions on the economy, the markets and even individual funds. By the time individual investors hear the news it is too late to act and they risk buying investments at their peak or selling at their trough.
Of course, it is easier said than done to invest without emotion which is one reason why having a financial adviser on board can be invaluable. Their objective approach can act as a counterbalance to your emotions, ensuring that you stick to your goals and achieve your financial objectives.
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