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$40,000 profit: How behaviour influences your investments

·3-min read
A young woman looks at the performance of her investments on her phone.
A new report has found many Aussie investors missed out on big gains by cashing out when the market took a hit last year (Source: Getty)

Whether you’re new to investing or been around the block a few times, it is important to always make sure your portfolio is diversified and ready for anything.

And even though the economy suffered during COVID-19, the stock market dipped and rose that saw some investors win while others lost out.

For example, if an investor had a $250,000 portfolio at the start of 2020 and stayed in the market throughout the volatility, they would have as much as $40,000 more now than a person who switched the cash, according to a new report.

Russell Investments’ Value of an Adviser report, to be released tomorrow, found that throughout the COVID-induced market volatility and recovery, the most critical mistake non-advised investors made was to abandon their long-term strategies.

This means many Aussies sold out of equities after dramatic market falls – and missed out on investment gains as the market roared back to life.

Russell Investments’ director and head of business solutions, Bronwyn Yates, said the events of the past year underlined the critical role advisers play in not only in growing their clients’ wealth, but in helping them to avoid the hazards which confronted investors as the crisis engulfed markets.

“Investors who have been educated by a financial adviser understand there will be ups and downs along their financial journey, so they feel comfortable in staying the course,” Yates said.

“However, non-advised investors sometimes fail to make the correct decision when markets are volatile, and often incorrectly time their exit and subsequent re-entry to the market.”

This is an issue which plagues both those who are worried about losing their gains, and those convinced they can beat the market, Yates added.

“It’s also a timely consideration for the growing ranks of millennials and Gen Z turning to ‘finfluencers’ as their source for financial advice,” she said.

“While it’s positive that investors across generations are becoming more engaged with their finances, and that they have more guidance options than ever before, the value of professional advice clearly speaks for itself in our report findings.”

Adapt, don’t react

The report also outlines the importance of ensuring clients invest in an appropriate mix of asset classes.

This can help Aussies make sure their portfolio is appropriately balanced so you can feel confident when volatility arises.

The research found that up to 85 per cent of a person's investment outcome will be dependent on their asset allocation.

However, the report said many investors lack the knowledge required to design and implement an asset allocation mix to suit their particular circumstances.

“While some investors are enthusiastic about their capabilities, many lack the skills, knowledge and time to research the many investment options available to them,” Yates said.

“Often, non-advised investors are tempted to chase performance and overreact to market events, like the sudden periods of market volatility witnessed in recent times.”

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