The Psychology of Investment: Unravelling the Emotional Decisions that D...

The Psychology of Investment: Unravelling the Emotional Decisions that Drive Financial Success

 

Investing is often perceived as a rational and analytical process driven solely by numbers and market trends. However, beneath the surface lies a complex web of emotions that can significantly influence investment decisions. Understanding the psychological aspect of investing is crucial for investors looking to navigate the markets successfully. In this article, we delve into why investing is often based on emotional decisions and how recognizing and managing these emotions can lead to better financial outcomes.

 

Emotional Investing: The Human Factor in Financial Decisions

 

1. Fear and Greed:

 

Contrarian investor, Warren Buffett, said: “be fearful when others are greedy and be greedy only when others are fearful”. Fear and greed are two potent emotions that can sway investment decisions. During market downturns, fear can lead investors to sell off assets hastily, fearing further losses. Conversely, in bull markets, greed can drive investors to make impulsive decisions, potentially buying into overvalued assets. Recognizing these emotions and learning to control their impact is key to making sound investment choices.

 

2. Aversion to Loss

 

The fear of losses can be more powerful than the prospect of gains, a phenomenon known as loss aversion. Investors often go to great lengths to avoid losses, sometimes leading to conservative choices that may hinder long-term growth. Understanding this emotional bias can help investors strike a balance between risk and reward, making more informed and strategic investment decisions. Be self aware, Maybe you have lost in the past due to a poor or uninformed decision and this is making you overly cautious?

 

The Role of Cognitive Biases in Investment

 

1. Anchoring Bias:

 

Anchoring bias occurs when investors fixate on specific reference points, such as past prices or market highs. This fixation can lead to irrational decision-making, as investors may be reluctant to adjust their strategies based on new information. Overcoming anchoring bias involves staying adaptable and reassessing investment decisions in light of current market conditions.

 

2. Confirmation Bias:

 

Confirmation bias is the tendency to seek out information that supports pre-existing beliefs while ignoring evidence to the contrary. Investors may fall into this trap by only considering data that aligns with their initial investment thesis. Actively seeking diverse opinions and regularly reassessing investment strategies can help mitigate the impact of confirmation bias.

 

The Importance of Emotional Intelligence in Investing

 

1. Self-Awareness:

 

Developing self-awareness is crucial for investors to recognize their emotional triggers and biases. By understanding their own risk tolerance and emotional responses, investors can make decisions aligned with their long-term financial goals rather than succumbing to short-term market fluctuations.

 

2. Patience and Discipline:

 

Emotional investing often leads to impulsive actions. Cultivating patience and discipline is vital for investors to resist the urge to make snap decisions based on fear or greed. Establishing a well-thought-out investment plan and sticking to it can help investors weather market volatility with confidence.

 

Your Past Experience, Background and Upbringing.

 

Americans spend more money on Lottery tickets than movies, video games, sporting events and books combined. Source: Morgan Housel, The Psychology of Money.

 

The lowest income households spent $412 a year on lottery tickets, four times the amount of people in higher income groups.

 

People buying the most lottery tickets are the same people who cannot come up with $412 in an emergency and are blowing their security on gambling with a ‘million to one’ shot of ever winning.

 

We can criticise the poorest in society for giving up security of having money in the bank for a one in a million chance of hitting the jackpot, but people make buying and investment decisions based on emotions and the current circumstances rather than logic.

 

If you’re a lower paid worker who feels there is no prospect of ever earning much more having a piece of the good life then you could be forgiven for saying the lottery ticket as your only chance of having the finer things in life.

 

But don’t think because you are Rich or middle class that you don’t also make investing decisions based on emotion, your upbringing on your past experience.

 

People who have lived through recessions, depressions, or extended market downturns, make very different investment decisions from people who have only seen the good times.

 

Just as people from well-off, financially, secure families make very different investment decisions than someone from a poor family.

 

This is also true of most decisions we make in life, whether it’s making a large purchase or choosing a future spouse, it is rarely based on logic or a spreadsheet!

 

Great salespeople know that people buy based on emotion, which is why they are at the top. On the other hand, average salespeople sell features of a product, which is why they are average. 

 

When investing, you need to understand why people make seemingly irrational decisions, like selling at the bottom of the market, when it has crashed, or buying at the top of the market.

 

Warren Buffett knows that it is important to be fearful when everyone else around him is brave and vice versa.

 

Navigating the Emotional Landscape of Investing

 

In conclusion, investing is not a purely rational endeavour. Emotions play a significant role in shaping financial decisions, and understanding this dynamic is paramount for success in the markets. Investors who acknowledge the impact of emotions, recognize cognitive biases, and cultivate emotional intelligence are better positioned to make informed, strategic decisions that align with their financial objectives.

 

By embracing the psychological aspect of investing, individuals can develop a more holistic approach to managing their portfolios. In a world where market dynamics are influenced by both quantitative factors and human emotions, the ability to strike a balance between reason and sentiment is the key to achieving long-term financial success.

 

Gold and silver have a long-established reputation as effective hedges against inflation. When fiat currencies lose value due to inflationary pressures, the purchasing power of gold and silver tends to rise. This characteristic makes them particularly attractive to investors seeking to protect their wealth from the eroding effects of inflation.

While the investment landscape continues to evolve with the emergence of new opportunities such as cryptocurrencies, the enduring appeal of gold and silver remains undeniable. These precious metals offer stability, tangibility, diversification, inherent value, and a time-tested hedge against inflation. Investors looking for a reliable and proven store of value should consider the enduring allure of gold and silver as foundational elements of a well-rounded investment portfolio.

For a free gold, investment report, and Discovery Call, click here.

 

https://pure-gold.co/charles-kelly

 

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See: – Transfer Property Into A Limited Company Without Paying CGT or Stamp Duty ⁠https://youtu.be/mtGq7WaVxLA ⁠

What’s in Store in 2024? Stock Markets, Property and Gold

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7 Things To Make 2024 Your Best Year Ever - Watch video version at Charles Kelly Money Tips Podcast: https://youtu.be/8oZ30NHVAr8

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#interestrates #inflation #oilprices #gold #silver #property #stockmarket #money #financialfreedom #inflation #section24 #Investing #EmotionalIntelligence #FinancialDecisions #CognitiveBiases #MarketPsychology #WealthManagement #warrenbuffett #harrydent #valueinvesting

Rishi Sunak's Budget - 6 Changes That Could Hit Your Pocket

October Budget 2021 6 Changes That Could Hit Your Pocket

UK Chancellor Rishi Sunak will set out the government's tax and spending plans on Wednesday 27 October.

The BBC is predicting six tax and budget changes at a time when Rishi Sunak has already announced a £7 billion spending spree on northern transport links and childcare help for families. There is also a possibility of extended loan support, due to end in December for businesses struggling to come out of the recession, or subject to another winter lockdown?

This will be the second Budget of the year, after one in March, and will coincide with the conclusions of the 2021 Spending Review, which will give details of how government will fund public services for the next three years.

Here are six possible things to watch out for in the Budget that could affect your personal finances.

1. VAT on energy bills

The chancellor is reportedly considering a cut to the 5% rate of value added tax on household energy bills.

The move would be popular and timely against the background of soaring energy bills this winter and is something the government is now able to do because of Brexit.

But the move could attract criticism as it would - in effect - mean subsidising fossil fuels ahead of the climate summit.

Also, a VAT cut on domestic energy bills would cost about £1.5bn a year, which may just be too much for the chancellor.

2. Alcohol tax

There are rumours the chancellor is planning to simplify the way that alcohol is taxed in the UK.

The 2019 Conservative election manifesto promised to review it, so now could be the time.

One suggestion is to reduce the premium on sparkling wine to the same level as still wine, which could knock 83p off a bottle of Champagne or Prosecco.

"The government should stop trying to favour certain parts of the industry, instead focusing on removing distortions and creating a simpler system of alcohol taxes targeted at socially costly drinking," said Kate Smith, associate director of the Institute for Fiscal Studies.

The drinks levies have been in place since the 1600s and raise £12bn a year for the government.

3. Capital Gains Tax rates

There are rumours that the current Capital Gains Tax rates may be tinkered with.

The tax is paid when people sell assets such as shares or a second home.

It's been suggested that rates could be aligned more closely with income tax rates, which could mean scrapping the current tax rates of 10% and 20% (or 18% and 28% for property) and instead making everyone pay income tax rates on their gains.

A report by the Office of Tax Simplification, published in November 2020, recommended that CGT rates should be increased to bring them into line with income tax.

But it would be unlikely to raise significant extra amounts of tax, as it is typically paid by only about 275,000 taxpayers and raises less than £10bn a year.

Shares can be sold quickly to avoid higher CGT, but properties can take months to sell.

4. Student loan threshold

There are reports that graduates may be asked to start paying back student loans earlier.

The chancellor could do that by lowering the threshold at which people start repaying their student loans, a move that could save the Treasury about £2bn a year.

Currently, English and Welsh students who enrolled at university after 2012 pay 9% of everything they earn above £27,295 per year. They repay the same 9% until the loan is fully repaid or until 30 years after graduating.

If the threshold were reduced to £25,000, it would cost anyone earning more than the current limit an extra £206 a year, while if it were slashed to £20,000, it would cost an extra £656 a year.

Ministers are rumoured to have proposed cutting the threshold to as low as £23,000 and giving graduates 40 years as opposed to 30 to repay their debt.

5. Minimum wage rise

In his March Budget, Mr Sunak announced that the National Living Wage (what the governments call the minimum wage) would increase for workers over the age of 23.

Since then, the government has come under pressure to help employees further - especially as younger workers have been some of the worst hit by the economic downturn.

One solution the chancellor has been reportedly looking at is to increase the National Living Wage by 5.7% to £9.42 per hour from its current rate of £8.91.

That would bring it close to the Living Wage Foundation's current recommendation of £9.50 an hour.

6. Pension higher rate allowance

The government could raise cash by cutting tax relief on pension savings for those on high salaries.

But pension experts warn such a move would not be as simple as it sounds, Steven Cameron, pensions director at Aegon, said: "A move to a flat rate of pensions tax relief, rather than the current system where relief is based on the rate of income tax paid, would be far from simple to implement."

He said it would be particularly difficult for defined-benefit schemes and could mean medium to high earners, including doctors in public sector schemes, facing big tax bills.

"Removing higher-rate relief would be a direct attack on middle Britain, leading to people who do the right thing and save for their future being hit with extra tax costs," said Tom Selby, head of retirement policy at AJ Bell. Source BBC

Financial education in investing is the key to building and keeping wealth. Never stop learning!

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Fraud Investigation Proves Why You Should Stick To Established Regulated...

·        SFO probe fraudulent care home investment scheme promising high returns.

·        Stick to regulated investments unless you possess specialised knowledge

·        Groupon ordered by regulator to get its act together on customer service

·        High Court offers hope of compensation for borrower with unaffordable loans

·        Many people borrowed at high rates with Provident doorstep loans for years

·        Loan sharks may not break your legs but will break your heart.

Watch full video 

In both the above examples, people are being duped because they lack new financial education and knowledge. Education is key to becoming financially free and getting out of debt.

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Mastering Money The S.M.A.R.T Way Lesson #3

Exclusive free training for my Money Tips Podcast followers!

 

Welcome To The Course, Mastering Money The S.M.A.R.T Way Without Working Any Harder! Lesson #3

 

MANAGE AND RESPECT YOUR MONEY

 

By the end of this module, you will learn how to manage and respect your money and make informed investment decisions to become a SMART MONEY MANAGER.

You can’t manage your finances without the right financial information.

Managing money, like managing your household, must be worked on throughout your life like exercise or washing. You cannot expect to stay in shape if you only exercise once a year!

What does managing your money mean?

Managing could be defined as control, influence or taking charge. An example of managing finances well is having enough put aside to be able to pay your bills despite a job loss.

 

Question

 

If you lost your job, for how long could you manage and pay your bills?

 

During a financial crisis or recession, millions of people lose their homes within months of being made redundant.

 

They have no savings. Instead, they have rent or mortgage payments, credit cards, car lease payments and loans. In short, most people live on a knife edge and are no more than three salary payments from bankruptcy.

 

Rainy-day money

 

You must have an emergency contingency fund so that you are not dependant on credit cards or instant payday loans when the car or washing machine breaks down.

 

Some well-known payday lenders charge as much as 91% APR (annualised percentage rate) for small unsecured loans, according to Payday UK’s website.

 

Borrowers do not realise they are paying an annualised 91% because they are paying off the loan in less than a year.

 

Payday UK quotes the following example:

 

“Representative Example: Borrow £500 for 6 months. Interest: £160.27 - Interest rate: 65% per annum (fixed). Representative APR: 91% - Total amount payable: £660.27. Rates between 9.3% APR and 1294% APR”.

 

Even high street banks are charging as much as 40% for a temporary overdraught – 400 times the base rate!

 

UK base interest rates are 0.1%, the lowest it has ever been in history.

 

If a lender is charging you 3% on your mortgage, that is 40 x the 0.1% the base lending rate on which they can borrow money from the markets and us depositors. I have never seen such a high margin.

 

Mortgages used to cost around 2% over base lending rates, so when the base rate was say 8%, you would typically pay 10% on a mortgage – or a margin of 1.25 over base lending rates.

 

Solution.

 

Make sure you have a contingency fund for emergencies, so you don’t have to rely on loan sharks.

 

If you do need credit, search for cheaper alternatives online or try credit unions.

 

You should have reserves equivalent to 6 to 12 months’ salary in the bank in case you lose your job or source of income. Large companies, government and local authorities hold millions of reserves. They also have a ‘disaster recovery’ plan in place.

 

You cannot possibly manage or control your finances without data, which means knowing exactly how much money is coming in and going out.

 

Managers cannot manage a company without accurate management information and your household is no different.

 

Think of yourself as a business or corporation even if you work for somebody.

 

You are the CEO of your own business.

 

Hold monthly, quarterly and annual board meetings with your family, even you’re the only director!

 

Set up a system to keep a track of your revenue and costs.

 

What does “respecting” money mean?

 

Respect money and it will respect you. The author and speaker Joe Vitale, who was featured in the movie The Secret, advises that “money has its own psychology” and “energy”, which you can either attract or block depending on your mindset.

 

Energy does not die; it moves around and changes form. Similarly, money circulates and helps multiple people and causes.

 

Think about it. Let's say you give $10 to a friend to pay his cleaner. His cleaner then uses the same $10 to pay for shoe repairs, the repair guy takes the same $10 to buy lunch and coffee at Starbucks.  Starbucks bank the cash. Your friend goes into the bank to draw cash out to repay you and gets the same $10 note and gives it back to you. How many things has that same $10 bought?

 

Right now there are trillions of dollars in circulation.

 

Author Brian Tracy gave me a simple idea at one of his seminars in America. The great speaker said: “You should respect money and even look after the cash in your wallet or purse by placing each dollar bill neatly and in order of value, with the President’s head facing the right way”. This might sound silly, but Brian went on to say that whenever he met someone who had money issues, their money would be stuffed into their pocket or purse like crumpled pieces of worthless paper. It was a metaphor for the way they treated money, and ultimately the way money treated them.

 

Respecting money is like respecting others, treating it well, nurturing it, looking after it and always taking care of it.

 

I had a school friend, Malcolm, from a well-off family who would casually throw away penny coins from his pocket saying they were “dirty” and “worthless”.

 

His lack of respect for money led to Malcolm being broke and living week-to-week for the rest of his life - even when he was earning well.

 

I had a habit of picking up “dirty” coins, which I retain to this day. The late Wayne Dyer also picked up coins and gave thanks for the blessing of money before putting them in a big jar.   

 

Look after your money and it will look after you.

 

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Education is key.

 

Lack of financial education can be extremely costly of your lifetime.

 

For instance, not understanding how high management charges on mutual funds or pension schemes can affect the value of your portfolio – which could cost you hundreds of thousands.  

 

Buying a house is probably the biggest financial transaction most people make in their lives, yet few people understand mortgages. They borrow hundreds of thousands and sign on the dotted line without reading the terms and conditions.

 

I have met extremely intelligent academics, scientists and directors running huge companies who did not know how to manage their personal finances and in some case made costly financial errors or retired broke.

 

Finance is not taught in schools, which is why we graduate from formal education financially ignorant. We rely on financial advisers to tell us what to do, but where do the advisers get their financial education? The answer is, from financial industry led courses. Anybody can take these financial adviser courses!

 

Take a financial adviser course.

 

You can take a basic financial adviser course without becoming an adviser. The knowledge I gained from the courses to become a regulated adviser have been invaluable to me throughout my life.

 

The courses taught me about saving and investing, but more importantly, borrowing money and using the infinite benefits of leveraging 'other people's money'.  

 

This knowledge has literally been worth millions to me over the years.

 

A short home-study financial course could be worth more in money terms than a university degree.

 

Never stop learning.

 

The world of finance is constantly changing and evolving. Keep yourself up-to-date by reading the financial pages of quality newspapers and magazines online or use your local library. It only takes a few minutes each day to scan the financial news, or an hour at the weekend to read the money pages, but this small investment will pay exponential dividends and perpetual returns for the rest of your life.

 

Summary Day 3

 

Managing and respecting money, and learning about the world of finance, is a lifelong process like looking after your health.

 

Action Steps

 

·        Think about how you manage your money.

·        Start recording your monthly income and expenditure.

·        Calculate how long you can survive if your income dried up.

·        Start saving for emergencies and have a disaster recovery plan.

·        Start building up a fund to cover 6–12 months of essential expenditure.

·        Organise and respect your money.

·        Educate yourself in all aspects of personal finance.

·        Take a course or read books.

·        Read the financial news.

·        Never stop learning and updating your knowledge.

 

Thank you for listening and congratulations on completing this module. In the next module, we will be looking at how to accumulate money over time.

 

If you would like to learn how to invest and manage your money, become a professional property investor, and be financially free without working any harder and spending your life exchanging your time for money watch this free on demand training now to learn how to become financially free without working any harder.

 

As a thank you, I will give a special free gift which can help transform your finances when you attend the online training.

Click on this link to watch the free training now https://bit.ly/3wLWqx2

How Will Higher Inflation Will Affect You - UK Inflation Jumps To 3 Year...

UK Inflation Hits 3 Year High - Stocks Fall And Gold Rises On Investor Fears

UK inflation reached the highest level since August 2018 prompting a drop in share prices as investors looked for the safety of gold.

The price of gold was up this week following the latest UK inflation figures, which saw CPI rise to 2.5%. Despite the pound's recent strength, gold climbed to £1,311.59 per ounce.

Elsewhere, stock markets are subdued following the news, with the FTSE 100 down 0.46% at 7092 points, Spain's IBEX 35 down 0.26%, and the Shanghai Composite down 1.07%.

The data, from the Office for National Statistics, repeats what has been said for the past few months now: inflation is rising as food, clothing, fuel, and second-hand cars are all costing more. The Land Registry group also confirms that house prices are up 10% year-on-year, putting the average property value at £254,624; less than £1,500 off March's all-time record of £256,000.

What does this mean for the economy?

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Superstar Investor Mohnish Pabrai on Buffett & Munger, Value Investing and Pabrai Funds

Great advice from a superstar investor who, like Buffeett and Munger, recommends low cost index funds like Vanguard for the average individual investor. 

#monishpabrai #warrenbuffett #investing 

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Biggest economic decline for 300 years says UK Chancellor Sunak

Biggest economic decline since 1709, as cost of coronavirus crisis rises to unprecedented levels.

Headlines:

·        Economic output falls 11.8% worst for 300 years

·        Unemployment will rise to 7.5% or 2.6 million by Q2 2021

·        Borrowing now at £394 billion, national debt £1 trillion

·        Millions face work-based pensions cut

·        Public sector worker pay freeze

·        Overseas aid budget cut

·        Council tax set to rise

·        Markets still riding high despite downturn

·        Britain’s largest estate agent in rescue plan

More articles and money news available at Money Tips Podcast - www.moneytipsdaily.com

·        Property prices fall in London

·        Job Furlough Scheme extended

·        UK House prices rise will reach all time high

·        Why live in expensive town centres anymore?

·        Government extends ban on landlords evicting tenants

·        Self-employed, have you claimed your government grant?

·        Why UK Property prices rising after stamp duty cut, despite the downturn?

·        New planning rules will open up more opportunities to make money in property

·        You can create a second income during the lockdown…and come out stronger

·        Learn how to make money from property without deposits, mortgages or cash

 

Register now for life changing BLACK FRIDAY exclusive business skills offers:

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Are you ready to adapt to the new economic model?

As lockdown restrictions around the world are being eased, the economic model has subtly changed forever. How will you adapt to this new way of working and running a business, what obstacles and opportunities lies ahead? Will you be a participant or spectator in this revolution?

By Charles Kelly, Wealth Mentor, Property Investor, Author of Yes, Money Can Buy You Happiness and creator of Money Tips Podcast.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

If you’d like further information on wealth mentoring and coaching, how to survive the crisis and even quit the rat race, email me at Charles@CharlesKelly.net or send me a message through Facebook or my Money Tips Daily community. See more articles at www.moneytipsdaily.com

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In times of disruption and lack of control, this is one way YOU can secure your financial future. This is ultimately the BEST time to start gaining new business skills, a new mindset or a new income stream.

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