How do I improve investment returns?

How do you actually improve your investment returns?

It's tempting to assume the answer lies in picking better funds or timing the market more cleverly, but one of the biggest factors is far closer to home: your own behaviour. Perhaps the most important way an adviser can add value isn't through investment selection at all, but through behavioural coaching.

In this video, you'll learn why even investors who fully understand the importance of staying disciplined find it so hard to hold their nerve when markets turn turbulent. At some point, most investors let their emotions get the better of them and end up taking exactly the wrong course of action, selling in a panic when markets fall, or piling in when prices seem to be climbing relentlessly. By helping you avoid these instinctive mistakes, a good financial adviser can easily repay their fees several times over.

You'll also learn how the value of behavioural coaching can be estimated. One method is to compare the returns generated by a fund with the returns actually experienced by the average investor in that same fund. The gap between the two reveals how much value investors typically destroy by buying and selling at the wrong moments. That figure varies from around 1% to 2% a year, depending on the market, a meaningful drag on long-term wealth.

The takeaway: if an adviser helps add, say, an average of 1.5% a year to your returns simply by managing your behaviour and keeping you disciplined, the cumulative effect by the time you reach retirement can be very substantial. Improving your investment returns, in other words, often has less to do with what you invest in and far more to do with how you behave.

Chapters / Key points

• Why your own behaviour is central to your investment returns
• Why behavioural coaching may be an adviser's most valuable role
• Why even disciplined investors struggle in turbulent markets
• The classic mistakes: bailing out in corrections, piling in at the top
• How avoiding these errors can repay an adviser's fees many times over
• How to estimate the value of behavioural coaching
• The gap between fund returns and investor returns
• Why a 1.5% annual behavioural gain compounds substantially by retirement

Transcript

How do I improve investment returns?

Perhaps the most important way of all in which an adviser can add value is through behavioural coaching.

Even those who understand the importance of remaining disciplined find it very hard to hold their nerve in turbulent markets. At some stage, most investors let their emotions get the better of them and take exactly the wrong course of action.

By persuading you not to bail out of equities during a correction, or to pile in when markets seem to be heading inexorably higher, a financial adviser can easily repay your fees several times over.

One way of estimating the value of behavioural coaching is to compare the returns generated by a fund with the returns experienced by the average investor in the same fund. This shows how much value investors destroy on average by periodically buying and selling. The figure varies from around 1% per annum to 2%, depending on the market.

If, say, your adviser helps to add an average of 1.5% a year to your returns by managing your behaviour, that will make a very substantial difference by the time you come to retire.