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Stuart Ritchie

By: Stuart Ritchie

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March 7th, 2018

UPDATED FOR 2019: “It’s only money” … moving on after financial loss (4 invaluable tips for your wellbeing)

Investment

There are millions of victims of traditional financial services.

Some have lost huge portions of their life savings.

Others have lost all of it.

There’s a trust deficit in financial services because of this.

Because some ‘advisers’ are in it for themselves.

This blog isn’t about them.

It’s about you.

More importantly, it’s about helping you get back on your feet…

If you have suffered at the hands of a financial salesperson.

I know the last thing you want to hear is, “it’s only money.”

Because it’s not just money...  

The emotional and physical effects of a major financial loss are similar to the grief you feel over the loss of a loved one, according to Aaron Bruhn, a lecturer at Australian National University.

Bruhn studied investors whose money evaporated when a major Australian financial planning company collapsed in 2009.  

He found that people who lost their savings experienced:

  • Shock, fear, regret and anger
  • Their personal relationships deteriorated
  • Their health suffered
  • They found it hard to move on

His findings demonstrate that the emotions caused by a financial setback are not to be taken lightly.  

But, that being said, it’s equally important to realise that a major investment loss doesn’t doom you to a life of depression.

We’re far more resilient than we give ourselves credit for…

…And this isn’t just empty reassurance.  

Daniel Gilbert, a professor of psychology at Harvard, researched people who suffered major trauma, ranging from car crashes to war.

He found the vast majority of them returned successfully to their pre-trauma state of happiness.  

And a couple of years later, a surprising number reported being happier than they were before the traumatic incident. 

Ask about our X-Ray Review today

 

Journeying towards wellbeing: 
4 tips for your brighter tomorrow

So how can you work towards a happier tomorrow?  

Here are a few tips to get you started.

1. Reach out to others

Personal relationships are an enormous help in overcoming any catastrophe, according to Adam Grant, a professor at the University of Pennsylvania who’s researched emotional resilience.  

The problem is that most of us have a natural tendency to withdraw from social contact when we’re feeling down.

It’s vital to fight this.

Don’t be shy about seeking out emotional support from friends and family or even from a professional counsellor.  

Simply being with loved ones, or talking things over with a neutral professional, can provide you with a sense of perspective about your loss.

Grant also suggests a couple of self-help tips:

One is to take pride in your loss.

Tell yourself:

“If I can get through this, I can get through anything.”

After all, it’s true.

Believe it or not, another useful technique is to imagine how much worse your situation could be.

Yes, you’ve suffered a financial setback, but issues such as your health and the wellbeing of your family are far more important.

Thinking through such possibilities sounds grotesque, but it emphasises all the things you still have to be grateful for.

2. Change what can be changed, accept what can’t

Do you feel you were the victim of fraud?  

By all means, consult a lawyer.  

It might be possible to recover some of what you lost through legal action. 

But be realistic about your chances.

High-pressure sales techniques

Statements that were misleading but technically true…

And exorbitant money-managing fees are morally reprehensible, but they may not be criminal in the eyes of the courts. 

In many cases, attempts to recoup your losses through expensive legal remedies are an example of what professionals call the “sunk cost fallacy” – also known as throwing good money after bad.

If you invested a bundle in a scheme that was supposed to be the next big thing, but it turned out instead to be the next big flop, the wisest move in most cases is to accept defeat, cut your losses and move on. 

This isn’t surrender.  

It’s simply a recognition of reality and an important step in healing.

You can also congratulate yourself. 

The complexity around international investment means many people never discover their losses until too late.

 

Hidden charges

 

3. See this as an opportunity

A financial setback can provide you with the jolt you need to become a better investor and perhaps, ultimately, a richer one.

At the very least, it’s an opportunity to assess where you went wrong and learn from the experience.

Good places to start empowering yourself are by reading:

Tony Robbins’ Unshakeable

Andrew Hallam’s The Millionaire Expat 

Andrew Tobias’s The Only Investment Guide You’ll Ever Need

Matt Hall’s Odds On: The making of an Evidence-Based Investor

Then, start remedying your situation.

While your recent losses may seem devastating right now, chances are your problem is nowhere near as bad as you think.

The most obvious fix for a hole in your financial situation is to spend less and save more.  

Another solution is to resolve to work longer.  

Simply extending your working life by two to five years can go an enormous way to repairing today’s financial damage.

Most people find that if they combine a longer career with a bigger savings habit, they can overcome even grievous financial damage.

 

How to make your retirement worries disappear

 

Perhaps the trickiest part of restoring your financial health is managing your emotions.

Many people bury their head in the sand, and ignore the evidence that things are going wrong as they slip further into the financial abyss. 

Yes - time is an amazing healer, but don’t miss any opportunity to set things right.

Some people will rush to make up their losses by leaping into high-risk investments that promise big returns, fast. 

It’s a sure recipe for disaster.

Others will go to the opposite extreme, parking their money in a savings account or other safe investment vehicle. 

This guarantees low risk, but also locks you into low returns.

It’s also not uncommon for those who’ve faced financial loss to shy away from the markets, and instead opt for bricks and mortar believing that a tangible property they can see, feel and understand is a better investment.

However, the numerical evidence doesn’t support this belief, and a lack of diversification into an illiquid and volatile asset class, such as real estate, can lead from the frying pan into the fire.

The best solution for nearly everyone is to systematically invest.

That is, to invest according to a fixed plan, consisting of…

  1. Choosing a globally diversified portfolio
  2. Picking an asset allocation in line with your risk tolerance
  3. Using low cost investments
  4. Avoiding trades that attempt to predict what’s ‘hot’ – a practice known as market timing
  5. Talking to an expert

The right financial adviser can help you make up the ground you’ve lost.  

 

Carl Richards_Goals-and-Dreams

 

But which adviser should you choose? 

Look for people who possess appropriate professional qualifications, such as the Chartered Insurance Institute or Chartered Institute for Securities & Investment Chartered Financial Planner or Chartered Wealth Manager designations respectively.

Ask them how they are regulated and check what they tell you is the truth. 

Request that they explain, in plain English, how they intend to manage your money. 

Accredited firms will give you an Investment Policy Statement.

Make sure, too, that you understand how an adviser is being compensated.

If he says you don’t have to pay him and claims to work for free, alarm bells should sound – that means he is being compensated by the providers of the financial products he is peddling.

Reputable advisers charge a transparent fee, often based on the size of your portfolio.

Spend time interviewing various advisers and don’t be shy about asking them to point to academic work that justifies their investing approach.

With a little bit of work, you should be able to find an organisation that can not only help you deal with your financial grief…

But give you control, clarity and confidence that you are on track to a much brighter future.

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Editors note: First published in March 2018. Updated in August 2019.

About Stuart Ritchie

Stuart Ritchie is a Chartered Financial Planner, APFS, Chartered Wealth Manager, Chartered FCSI

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