Complacency can lead to emotional decision-making when volatility does happen, and that’s when investors make the biggest mistakes, says Surrey-based financial advisor Tanya Wilson, right, with client service specialist Mallory Pearson.

Why emotions and investing don’t mix

Surrey advisor shares why understanding your investment risk tolerance is vital

It’s easy to be confident in your investment approach when the markets are primarily going up.

But what happens when you add a little volatility to the mix?

“Markets have gone up by more than 250 per cent since the last recession, with very little volatility until recently. This is not normal – people have forgotten what normal volatility feels like,” says Tanya Wilson, a Surrey-based financial advisor with Raymond James. “People have become complacent in their risk tolerance assessments.”

The problem with emotion-based decision-making

Complacency can lead to emotional decision-making when volatility does happen, and that’s when investors make the biggest mistakes.

Investors feel most at ease with investing when news is good, usually at the top of the market, and feel the most fear about investing when news is bad, usually at the bottom of the market. Giving in to these fears and allowing them to control investment decision-making can result in very poor investment performance.

“Money is emotional, so it’s natural, as humans, to allow emotions into the equation, but approaching investment decisions from a place of fear or greed is how we can make bad decisions,” Wilson says.

High risk doesn’t always equate to high returns, and those who get caught up in fads or buying the “sure thing,” can put their investment portfolios at risk. “I know of investors who have lost everything because they heard about the stock of a company that’s ‘guaranteed’ to go up,” Wilson says.

Is your retirement plan too risky?

For those nearing retirement, this long period of growth – and resulting complacency – may have led to investment plans that carry considerable risk.

“I believe that many investors, especially those close to retirement, have too much risk in their investment portfolios, and that’s happened because the markets have performed so well over the past decade,” Wilson reflects.

Assessing someone’s risk tolerance – and ensuring it’s reflected in their investment strategies – is difficult when markets are only going up, especially when an advisor hasn’t been through a full market cycle themselves, or experienced a recession.

“This is why you should work with a skilled, trusted advisor who has a significant amount of experience and education, and preferably one who works for an independent wealth management firm without targets for selling proprietary investment products. The clients’ best interests should always be the advisor’s No. 1 consideration.”

The core values of Raymond James and their advisors are conservatism, client-first, and integrity. This is reflected in the level of service their client’s experience.

“My team and I have a process which focuses on prudent risk management through financial planning. This is the blueprint for our investment strategy decisions. During times of heightened market volatility, our clients have a lot of peace of mind in our investment strategy and their financial well-being.”

To learn more about planning for your financial future, visit raymondjames.ca/tanyawilson/ or call 604-659-8258.

RELATED READING: Why a comprehensive financial plan is vital in volatile times

Tanya Wilson is a financial advisor with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The view and opinions contained in the article are those of the author, not Raymond James Ltd. Raymond James Ltd. member of Canadian Investor Protection Fund.

Financial planning

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