The psychological traps that hold us back
The biggest barrier to investing is often an individual's own psyche. Whilst markets might be efficient, investors are held back more by what's between their ears.
Financial planner and author of Get Your Head Out Of The Sand Lisa Dudson says too many investors get consumed by the myths, fantasies and excuses that surround money. "While money-management skills can be quite easily learnt, attitudes and behaviours are often more difficult to tackle."
Call them phobias, hang-ups, barriers, or simply savings mistakes, here are some of the common psychological traps that hold investors back:
- Programming your brain with the wrong words. Rich Dad, Poor Dad author Robert Kiyosaki points out that the rich talk about "investing" and the poor aspire to "save". If you say to yourself you're sinking or struggling, what are you telling your brain?
- Head-in-the-sand-itis. Inaction and procrastination hold investors back.
- Avoiding the issue. In our culture money isn't a subject of discussion in polite society. Avoiding the issue doesn't make it go away.
- Money fantasies such as believing you're going to win the lottery or write a best seller prevent us from taking action.
- Excusitis. Excuses such as 'I don't earn enough', 'I don't have enough time', 'I want to wait until'…., 'I don't have the energy' are real financial killers. Instead you should write an investment plan, and read what you've written on a regular basis.
- The lemming factor. All too often naïve investors follow the crowd and chase last year's best investment, rather than looking what next year's will be.
- Predisposed to panicking. Amateur investors are all too likely to sell out of a market long before it hits the top. For example, those investors who sold off their investment properties in 2003, sure they'd seen the top of the market, must be kicking themselves now.
- Gambling. Beware of investing in markets you don't understand such as leveraged foreign exchange or contracts for difference. People do make a fortune in these markets, but only the really canny ones who have the right temperament and have educated themselves.
- Hot tip temptations. Beware. Hot tips from friends, relatives and workmates often turn out to be duds, so do your own research. Even worse are unsolicited tips that arrive by email. They're almost certainly scams.
It's easy to blame others for your financial phobias and fantasies. But if you can instead identify your psychological barriers it's possible to re-programme your brain with new beliefs.
To find out just how phobic you are, visit the www.financial-phobia.co.uk website, which has a fun phobe-o-meter test that rates individuals on a scale ranging from financial ostrich, to hedgehog, sloth, squirrel and fox.