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  • August 28, 2014

Five Years Later: How Investment Behavior Has Changed - Ladue News: Business & Wealth

Five Years Later: How Investment Behavior Has Changed

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Posted: Thursday, May 9, 2013 12:00 pm | Updated: 12:25 pm, Thu May 9, 2013.

After the initial veil of financial hysteria lifted, the economic chaos of 2008—and the proceeding years of fiscal turmoil—made a little more sense. The economy was seen through a new perspective, and things have surely changed, but the ‘hows’ and ‘whys’ seem as blurred as the crisis did at its start. What are we doing financially, and is it the best way to approach investing? Area professionals, as well as the results of a recent survey, weigh in on what we should do to prosper from here.

Broadly speaking, people are improving their ways. Fifty-six percent of investors have switched from “scared to prepared” after the initial economic downturn, according to the new Fidelity Five Years Later study conducted by Fidelity Investments. This reported preparation includes improvements like reducing debt and increasing retirement and emergency savings. The study answers other questions, including where investors look for assistance and which group(s) participants blame for the downturn. Tied for the top answer, 38 percent of respondents blame “bankers and lenders,” while “people [who] borrowed more than they could afford” are accused by an equal number.

“When you look at what’s happening, I find that a lot of clients feel much more accountable for their situation,” says Sean McClanahan, senior branch manager and VP of Fidelity Investments (Ladue branch). These self-accountable customers include existing clients, as well as new clients suddenly motivated by the nervousness of the market. That accountability also is represented throughout the study results, with almost six in 10 people saying they are exclusively accountable for their retirement.

Of the original “scared to prepared” 56 percent, 78 percent say this new investment involvement is permanent behavior. McClanahan agrees, saying it’s what he has seen in St. Louis. “I don’t see people going back to the old ways,” he says.

These results give the impression that we, as investors, have learned something from this financial turmoil—but what? McClanahan ranks listening as one of the largest improvements. “Diversification is huge,” he says of portfolios. “People listen to that a little bit more [now]. They don’t concentrate their portfolio nearly as much as they may have before.”

McClanahan notes the decision to hire a financial professional or manage investments personally should depend on an individual’s time and knowledge. From his experience, he says many customers speak with financial professionals about investments to make sure nothing is overlooked, or because they’d like to pass the investment reigns over to remove the responsibility.

“Within a period of market volatility, the professional helps take the emotion out of investing,” says Jeff Burgess, senior VP for Commerce Brokerage Services. This emotion refers to the panic-stricken desire to sell everything when the market sinks to avoid losing money. This hasty liquidation can be an amateur mistake, as a professional in that situation may have known better whether an investor should adjust the plan or stay the course, according to Burgess.

Burgess explains that, despite misconceptions, the domestic market is up more than 130 percent since April of 2009—and those who liquidated in fear missed out on the possible rewards. “Within a period of market volatility, especially as we’ve seen, the professional help takes the emotion out of investing. The average investor who attempts to do this themselves experiences the urge to buy when they should not be buying, and the urge to sell when they should not be selling.”

Debbie Maret, a Stone Carlie investment advisor representative, expresses similar concerns for future financial decision-makers. “What I hope people have learned from this is to stay disciplined. The behavioral part of finance is the hardest,” Maret says. “Our clients were worried, but by staying disciplined and staying invested, they were able to realize this ‘up’ market. We all have to remind ourselves what finance is about: buy low, sell high.”

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