Investing can be a stressful process, but it is vital to achieving the necessary growth needed to reach your clients’ long-term goals.
It can be tricky to navigate markets, avoid harmful short-term decisions, and develop a portfolio designed to endure market fluctuations while producing decent returns over the long term.
So, it might seem absurd to suggest your clients learn how to avoid some common investing mistakes by rewinding to the 80s and indulging in a dose of musical nostalgia. But associative learning is a well-known, effective teaching technique.
Read on to discover four simple investing lessons that these 80’s tracks can help your clients remember and hopefully push them to avoid making costly mistakes.
1. ‘Just Can’t Get Enough’ by Depeche Mode
A good investment can be a boost to your clients’ plans, but it can also be hard to turn away from. Your clients might find they “just can’t get enough”.
Too much of a good thing can potentially be detrimental to your clients’ goals, as they funnel more than they should into a single investment — neglecting much-needed diversification — and possibly taking on more risk than they can handle.
Taking a quick glimpse at the globe’s leading stock indices performance for the year to the end of December 2022 shows the majority posted annual losses, as shown by the table below:
Source: JP Morgan
However, the UK FTSE All-Share actually produced marginally positive returns for the year.
It is important that your clients don’t put all their eggs in one basket and diversify their investments across different markets and assets to ensure their portfolios are protected as possible from any short-term market downturns.
Just can’t get enough? Well yes, they can. It is a key part of our ethos at Grey Parrot that once your clients have enough to unlock their dream lifestyle, we’ll encourage them to stop investing and go spend their money.
2. ‘Don’t Stop Believin’’ by Journey
Investing decisions can easily be swayed by emotions. Your clients might experience short-term downturns and feel tempted to “sell, sell, sell”. But it’s important they avoid any kneejerk reactions and “don’t stop believing” in their long-term plans.
One particular psychological bias that might push your clients to lose faith in their financial plans is “loss aversion”. The theory posits that your clients are likely to feel the pains of losses twice as strongly as any joy produced by gains.
If markets take a dip and your clients’ investments see short-term losses, your clients might be tempted to sell and convert what was initially a potential paper loss into an actual one to mitigate against any further loss in value.
Financial plans look at long-term periods of 5, 10, 20, or 30 years. They typically account for short-term fluctuations and look at getting your clients to their goals over the long term, relying on cashflow modelling and smart investing methods.
If your clients opt to sell during a downturn, they remove any possibility of their investments bouncing back in the future and continuing towards generating long-term growth.
Schroders reports that even though markets had to endure the bursting of the dot-com bubble and the 2008 financial crash over the 20-year period between 31 December 1999 and 2019, the FTSE 100 would likely have produced positive returns for investors. If investors kept their stocks throughout the period and reinvested any dividends, they could have seen returns of 122%.
Your clients should take a patient approach to their investments and remember to “don’t stop believing” in their financial plan’s ability to help them reach their long-term goals.
3. ‘Opportunities (Let’s Make Lots Of Money)’ by the Pet Shop Boys
Market downturns can offer your clients opportunities that might end up making them, in the words of the Pet Shop Boys, “lots of money”.
As stock markets dip, traditionally secure, high-value commodities and equities may find themselves priced lower than expected, which can offer proactive investors an opportunity to invest for a smaller initial outlay or expand upon a previous investment.
According to interactive investor, it is one of the main reasons why many investors are feeling optimistic about 2023. Recent market fluctuations and general economic malaise have created plenty of opportunities for investors to expand portfolios by acquiring solid investments at low valuations with the UK market being referred to as a “bargain basement”.
If your clients have any surplus funds available and it is within their tolerance for risk, they might want to consider seizing any opportunities to gain undervalued investments and potentially boost their future plans.
4. ‘Livin’ On A Prayer’ by Bon Jovi
Bon Jovi’s catchy number provides this final lesson for your clients — investing should utilise surplus funds and not leave your clients “livin’ on a prayer” by forgetting to ensure they have the necessary savings in place to provide for their essential outgoings should the worst occur.
Your clients should consider an emergency fund of at least three to six months’ worth of key bills, such as:
- Rent/mortgage payments
- Utility bills
- Council tax
- Groceries
This can provide them with a huge boost to their emotional and financial wellbeing and ensure any investments they opt to make don’t draw from funds necessary to provide for their essentials.
Get in touch
If your clients’ investments thrive, they are likely to have more disposable income in place to cover outgoings, grow their businesses, and spend on crucial protection such as insurance cover.
It is important they avoid short-term mistakes and seek out advice to help them towards their long-term goals by contacting us at info@grey-parrot.co.uk or calling 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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