Rational behaviour by individual investors against the theoretical best practice: Barclays wealth survey.
As per the survey, asset allocation is costing them 2%-3% annually in return. Investors find it difficult to balance what may be optimal long term decisions against different decisions that are made in the short term to reduce anxiety.
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The report is based on half a decade of implementing a process to identify investor behaviour and the types of situations and decisions that they feel increase or decrease anxiety in the short term.
Greg Davies, head of Behavioural Finance at Barclays Wealth & Investment Management, said studies into behavioural finance suggested that while the industry looked at risk/reward ratios, for individual investors it was more a case of anxiety/reward.
It is important to identify the behaviour gap, which is the difference between actual investor returns. Sticking to the classic investment principles is required as over a longer period it can have a significant effect on the growth of portfolios, even if they are well diversified among asset classes.
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