The behavioural side of investing – Why good advice sometimes gets ignored

Markets test discipline more than they test intelligence. Even experienced, well-advised investors can find themselves making decisions in the moment that undermine years of careful planning, simply because emotion, rather than strategy, is doing the driving.

What the numbers show

DALBAR's long-running US study, Quantitative Analysis of Investor Behaviour, has tracked this gap for over three decades.

In 2024, the average equity fund investor earned around 16.5 per cent, against a return of just over 25 per cent for the S&P 500, a gap of roughly 850 basis points and one of the widest seen in the past ten years.

Looked at over twenty years, the average equity investor has returned around 9.2 per cent annually, compared with around 10.4 per cent for the index itself, a gap that compounds into a substantial difference over time.

Why investors get it wrong

There are a number of reasons why investors can get it wrong during their financial planning:

• Loss aversion – Losses tend to feel far more painful than equivalent gains feel rewarding, which pushes investors towards selling at exactly the wrong moment.
• Herd behaviour and recency bias – Chasing recent winners after most of the gain has already been made or abandoning an approach after a period of underperformance tends to lock in poor timing.
• Poor timing at the extremes – Outflows from equity funds have consistently peaked in the weeks before a market recovery, meaning investors sell low and then miss the rebound.

These are things that an independent financial adviser can help you to explain and avoid. We work with you to get a deeper understanding of your goals and then build a robust plan that meets them, while avoiding some of these common traits.

The value of a behavioural coach

A significant part of a financial adviser's role has little to do with picking investments and everything to do with stopping clients from panic-selling in a downturn, over-risking in a rally or making an impulsive, irreversible decision under pressure.

This coaching function is hard to quantify precisely, but the data suggests it can be one of the biggest single drivers of long-term outcomes.

Sticking to the plan

A well-constructed financial plan anticipates volatility before it arrives, so that when markets do fall, the response has already been agreed rather than decided in the heat of the moment.

Discipline, far more than timing, is what tends to separate long-term wealth builders from everyone else seeking a more immediate, but less secure gain.

How can we help

If you would like to discuss how your investment strategy is positioned to withstand market volatility or how our team supports clients through periods of uncertainty, please get in touch with Lubbock Fine Wealth Management.

The information included in this article may be subject to changes in taxation following its publication. This article is intended for informational purposes only and does not constitute advice. Past performance is not a guide to future performance.

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