Some investors are born losers

THE fact that many investors fail to achieve their wealth potential can be attributed to their behavioural patterns.

THE fact that many investors fail to achieve their wealth potential can be attributed to their behavioural patterns.

Over the last 20 years working parents with young children have been firmly committed to providing them with the best possible education; far better than received by previous generations and a decision made with much greater financial knowledge.

Investors regularly make decisions based on their understanding of fear and greed. We all want to get on the gravy train when things are going well and invest as if there are no obstacles ahead.

In any investment cycle - say over a seven year period - there will be economic events that pull down stock markets and property prices in the short term.

It's at this time that investors, who bought at higher prices, find that their values are down and, by not understanding the reasons why there may be a downturn, they sell and realise their losses. Remember, you only realise a loss when you actually sell.

Now, faced with this horrendous experience, with markets hitting rock bottom and, instead of realising that this is the time to invest, investors become fearful of not wanting to lose their hard-earned savings by taking a risk.

Markets start to rise, they do nothing and the whole cycle turns again as they watch everyone around them making money. As markets start to reach new highs, they start investing again.

Trying to time the market destroys wealth on a regular basis. You will never create any wealth by moving in and out of markets at the wrong time and by not staying for the long haul. The longer you stay in investments, the more stable your returns are likely to be.

You can liken poor physical health to poor investment behaviour. Looking after your health is not a short term process. It's a lifetime process. You should look at your financial plans in the same way.

I'm asked how I feel about investing in the market and my response is that I've never tried to time entry into the market. The first question that needs to be asked is "what is your objective?"

Alternatively, what do you hope to achieve with the funds you have available? If you will be needing the money in the next two to three years, my advice is to keep it in money market funds either through your bank or in unit trusts. This period is far too short to take any risk and, though one could be tempted into the herd mentality, don't be, stay put.

For a longer time horizon of say four to five years, I would suggest a conservative portfolio not too heavily weighted in equities. But do keep a small portion of the investment in equities. Naturally, your returns are going to be a lot less than the market could achieve, but in this case stability would be wiser.

For a time horizon of six years and beyond, I would be happy to recommend a gradual phase into equities over the next six to nine months, to take into account the volatility that's currently being displayed by uncertainty in world economies. It's important that you get good financial advice before making any long term investment decisions.

l The writer is a director of Bryan Hirsch Colley