What is Behavioural Finance and what can I do to improve my financial decision making?
Chris Brown
???? Helping Australians over 50 to Finish Strong ? Director/ Senior Financial Adviser ? 20 years Industry Experience ? Financial Planner AFP? ? Top 'Platinum' Rating by clients on Adviser Ratings site ? 12K LI Followers
??What is Behavioural Finance and what can I do to improve my financial decision making?
???Firstly- what is it???
??? Historically- modern portfolio theory was a dominant financial theory.?It suggested that humans and investors made decisions which were rational and that the decision makers were financially literate and disciplined in their approach.
?? However-behavioural finance is now a predominant theory of understanding how humans makes financial decisions.
???It states that rather than being rational and calculating, people often make financial decisions based on emotions and cognitive biases.??
?? This can lead to people making decisions with their money that are not in their long-term best interests- such as overspending, not saving/ investing sooner, or attempting to control investment markets.
???So, what can you do about this?
??? By having an objective professional to assist with major financial decisions and coach you through difficult times – positive decision making is encouraged which can make great benefits to your long-term financial health.
?? In fact, research from Vanguard estimates that the typical value added by an adviser to a client by behavioural coaching alone equates to an additional 1.5% p/a in net returns (part of what they call Adviser Alpha).
??Financial advisers through behavioural coaching- can help clients to deal with the investment market ‘noise’ and the times when emotions run high- preventing financial mistakes while helping them to stick to their financial plans to maximise the probability of achieving their long-term goals.
??Behavioural financial counselling and coaching is one of the most valuable practices that a financial adviser can bring to their clients. I am acutely aware that this is one of the most important aspects of my role.
?Over 50- and don’t have someone like me in your life to provide behavioural counselling to improve your financial outcomes? See my ‘About’ section on how to take action.