Stress in the financial markets is prompting a growing number of people to make extreme investment decisions that could ultimately hit their wealth, warns the CEO of one of the world’s largest independent financial advisory organisations.
The warning from Nigel Green, chief executive and founder of deVere Group, comes as all major markets are in bear territory and are highly susceptible to coronavirus-related developments.
Mr Green comments: “It’s been our experience in recent weeks that, driven by the current unusual circumstances, a growing number of people are becoming more extreme in their investment decisions.
“The world has changed since the pandemic and this has, of course, directly impacted the investment landscape.
“Therefore, it is sensible that the fast-changing situation is closely and carefully monitored by investors.
“However, the unprecedented, emotional and all-encompassing nature of it is leading many into two distinct camps: over-action or inaction. Both could spell disaster for people’s long-term investment strategies.”
He continues: “Those in the over-action category are seeing anything and everything – regardless of the tried and tested benchmarks and criteria – as a massive buying opportunity.
“Being over confident and over-leveraging can lead to bad investment choices. This was shown by the dramatic market sell-offs following the bursting of the dot com bubble in 2000, and the 2008 global financial crash.”
On the other end of the scale there are those whose investment decision-making is now overtaken fear.
“On the flipside, an overly pessimistic attitude is leading too many investors to do little or nothing to create and build their wealth.
“They’ve become paralysed by the fear that a global recession will hurt corporate earnings, and that this means that there’s no value in the market currently. As such, they sit inactively on the sidelines, potentially missing major opportunities in the process.”
Mr Green adds: “Too many investors are being led by their emotions which can lead to over-action or inaction.
“Now more than ever, emotions should not be centre-stage in the investment decision-making process.
“Cool heads and a long-term strategy are the best way to handle market shocks.”
He concludes: “There’s always a better way than emotions to make investment decisions.
“This is why many investors prefer to use strategies that lock them into an investment approach that overrides their changing moods.”