BLOG: Don’t let ego get in the way of making money
It was interesting to note on that Tuesday 14th January the Nikkei 225 fell by more the 3% in a single day. Now, it is often suggested that developed world markets typically follow each other because our economies are so interconnected. However the FTSE 100, on the same day, managed to register a small rise in value.
To me, what might be a reasonable expectation of a global fall in developed country markets on the same day, actually turned out to be an advert for portfolio diversification.
Holding a diversified range of assets within a portfolio can help to improve the stability and security of your assets.
In my experience the biggest difference between a portfolio chosen by an individual and a portfolio chosen by a financial planner, is that the portfolio chosen by individuals lacks diversification. The temptation when investing your own money is to ‘have a play’ and/or ‘invest in what you know’.
If this is the main driver behind the decision making process, then it is also likely that ego and emotion – the enemies of sound investment decision making – are present somewhere too. If this is the case then the likelihood is that you hold a portfolio that is lacking in diversification. Typically this means holding too much in shares, and too much in UK shares.
Putting a portfolio together objectively requires you to take almost all of the fun and excitement out of the decision making process. You have to know that you don’t know (remove ego) and want your portfolio to be relatively boring and stable (remove emotion and excitement).
The benefit of doing so is that you will most likely create a portfolio for yourself that is much more diversified, and set to benefit from variable market returns in different sectors.
You, as an investor, are much more likely to have an easier ride and be more relaxed about enjoying your life and spending the money, which at the end of the day should be what you are ultimately investing for.
Jaskarn Pawar is a chartered financial planner at Northampton-based advisory firm, Investor Profile