Emotional investment decision 'most common error'

The majority of financial advisers here said that traditional portfolio allocation is not the best way to pursue returns and manage investment risk.
The majority of financial advisers here said that traditional portfolio allocation is not the best way to pursue returns and manage investment risk. PHOTO: AGENCE FRANCE-PRESSE

Survey finds that focusing on short-term market 'noise' is the second most common mistake here

The most common mistake made by investors here is the making of emotional investment decisions, a new survey has found.

Sixty-nine per cent of 150 financial advisers surveyed here by Natixis Global Asset Management said investors made this mistake the most.

Focusing on short-term market "noise" and changes was the second most common mistake here, Natixis said. A similar level - close to 69 per cent of the advisers - said investors made this mistake.

Investors here also failed to have a financial plan, 60 per cent said.

Fifty-five per cent said that investors do not set clear financial goals. And rounding out the top five mistakes, 39 per cent said investors here do not stay on course with their investments.

The firm, with the goal of understanding the roles and responsibilities of today's financial adviser in a continually changing market landscape, surveyed 2,400 advisers in 14 countries in June and July.

Clients here were also more interested in discussing risk than they were last year, 61 per cent of advisers here reported.

However, only 49 per cent of advisers here said their clients' levels of investment risk were increasing.

This may be due to concerns over the recent surge in market volatility largely driven by "uncertainty in China and diverging global monetary policy", said Natixis.

"Anxiety may be high for some investors in today's uncertain market environment, and investors might find it difficult to resist making changes to their investment portfolios," said Mr John Hailer, chief executive officer for Natixis Global Asset Management in the Americas and Asia.

"But we've often found that unguided emotional investment decisions don't work out as intended. Investors would do well, instead, to stay the course and work towards long-term goals,"

The survey found that 72 per cent of advisers here said traditional portfolio allocation - consisting of 60 per cent stocks and 40 per cent bonds - is not the best way to pursue returns and manage investment risk.

It also found that 71 per cent of advisers here use alternative assets in the portfolios of at least some clients, compared to 70 per cent globally. And 57 per cent of advisers here use them for clients with assets of between US$1 million (S$1.4 million) and US$4.9 million. Thirty-one per cent use them for clients with more than US$5 million in assets.

Alternative assets can include non-traditional strategies as well as more traditional exposure to commodities, currencies and real estate, said Natixis.

"Alternative assets and strategies have historically been effective diversifiers which offer investors a wider range of strategies to build more resilient portfolios that can better enhance return and reduce risk in volatile markets, especially when they build retirement portfolios for clients to generate sufficient income to fund their living and medical costs," said Ms Madeline Ho, head of wholesale fund distribution for Asia Pacific, Natixis Global Asset Management.

Fifty-five per cent of advisers here will advise their clients to shorten the duration of their bond portfolios as rates rise while 45 per cent said that as rates rise, they will advise clients to reduce bond holdings, Natixis said.

Two in five advisers here said they will advise clients to allocate more resources to stocks as rates rise.

Forty-three per cent of advisers here will advise clients to increase alternative assets as rates rise, said Natixis.

A version of this article appeared in the print edition of The Sunday Times on October 11, 2015, with the headline 'Emotional investment decision 'most common error''. Print Edition | Subscribe