While behavioural finance is a relatively new field of study, it is one that has a profound effect on the fiscal marketplace. In simple terms, of course, behavioural finance dictates that the world and the majority of its inhabitants can be described as wealth maximizers, but there are numerous instances in which emotion and psychology can influence fiscal decision making and challenge existing priorities.
With these nuances in mind, the introduction of behavioural finance has helped investors and business-owners to understand the ways in which psychology influences our ability to build wealth (for good or for bad and across multiple marketplaces).
It has also opened our minds to the methods that can be used to avoid irrational financial decisions, particularly in the volatile and constantly changing worlds of investment and trading.
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
Why Wealth Management Services Have Become Increasingly Popular in the Age of Behavioural Finance
On a fundamental level, behavioural finance and its associated studies leverage cognitive psychological theory to determine why we take specific decisions when managing our money. This, in turn, either provides a lesson for others to follow or highlights the negative impact of emotion and indecision.
As a result of this and the inherent weaknesses that behavioural psychology exposes, investors have also sought out ways to minimize the risks associated with financial management. This outlook has helped to popularize the online trading and wealth management platforms, which have gradually made the financial markets more accessible while enabling investors to manage risk, automate trades and eliminate emotion from their decision-making processes.
This is particularly the case with online trading platforms, which have ushered in an age of automated trading and largely negated the risk of human error in the fast and furious financial marketplace.
From a business perspective, we have seen a similar trend with the emergence of wealth management services. Offering both on and offline assistance, service providers such as WH Ireland have a relatively long history of working alongside corporate institutions, while they also deliver a client-centric focus that tailors strategies in line with an existing investment philosophy. With strategies that combine both core investment services and tax efficient portfolio options, modern wealth management firms deliver viable solutions that leverage relevant industry expertise.
As we can see, wealth management firms enable investors to access a host of unique and profitable asset classes, which ensures that they are able to diversify their portfolios without increasing their risk profile. There is also no requirement for them to gain any specific knowledge of new markets or industries before making a commitment, as service providers use experts from a range of sector to help drive informed decisions. This means that corporations are not put in a position where they are required to make ill-informed decisions, or become vulnerable to ill-judged and knee-jerk reactions to market shifts.
The Bottom Line: The Sustained Evolution of Behavioural Finance
When the burgeoning science of behavioural finance first emerged, it provided a fascinating insight into the triggers that impacted on the decisions made by individual and corporate investors. It also showed how emotion and ill-informed decision making can derail even the best laid investment plans, particularly when dealing with volatile derivatives such as currency.
The evolution of this science has since continued at pace, helping investors to understand the psychological risks associated with managing wealth and identifying viable ways of negating these.
This has created a climate in which today’s corporations are increasingly likely to leverage expert wealth management services, in a bid to eliminate human error, minimize emotion and get the absolute maximum from their finances over a sustained period of time.
Article by Vintage Value Investing