Research shows that human behaviour and investing mistakes are closely linked.
- Investors like to chase high past returns.
- Fund management companies love to advertise strong past performance.
- High past returns are often poor predictors of future returns.
Fund managers get paid on the amount of money they manage. In fact some even go so far as to pay themselves a bonus when the market goes up. As advisers we want our clients to take the least amount of capital risk, while still allowing them to reach their financial goals.
The paradox is that financial advisers are here to advise and to help people avoid the pitfalls of investing, yet two thirds of KiwiSaver fund managers don’t want financial advisers involved in the retirement planning process, and will not deal with anyone unless they are tied and bound to their company.
The next time you see a well dressed fund manager telling you what great returns they achieved last year – don’t fall for the spin. Go find an adviser who can provide you with truly independent research. Be an informed investor, not a cash cow for the fund management industry.