Mind Your Money: Beyond the glitz: What investors really want (and need)

For two decades, I’ve navigated the ever-shifting currents of the financial world. From the great financial crisis of 2008 to the 2020 Covid 19 crash and beyond, I’ve witnessed countless trends come and go. Yet, one thing remains constant: investor psychology. We all share a cocktail of emotions – fear, greed, and that ever-present desire for a quick win – that can cloud our judgment.

The truth is there’s no magic formula for success. The flashiest investment, the one your neighbour swears by, might not be the right fit for you. Here’s what truly matters: understanding yourself and your risk tolerance.

1. The democratisation of finance

The landscape is changing. Previously exclusive asset classes like private equity, venture capital (VC), and pre-IPO opportunities are becoming accessible to retail investors. Technology has democratised finance, offering a smorgasbord of options. Platforms like crowdfunding and online brokerages have opened doors that were once firmly shut to anyone but the ultra-wealthy and institutional investors.

This democratisation means that retail investors now have the opportunity to diversify their portfolios in ways that were previously unimaginable. But a word of caution: with great opportunity comes great responsibility.

2. Understanding the risks

These new avenues are exciting, but they can be a minefield for the unprepared. Are you comfortable with the inherent risks? Unlike traditional stocks and bonds, these investments are often illiquid, meaning you might not be able to cash out quickly. They can be complex too, requiring in-depth research and a longer investment horizon.

Private equity and venture capital investments, for example, typically involve longer lock-up periods and higher volatility. Pre-IPO opportunities might offer the allure of getting in on the ground floor of the next big thing, but they come with substantial risks, including the possibility of the company never going public or failing entirely.

3. The role of the adviser

Here’s where your adviser comes in. A good adviser isn’t just a salesperson; they’re a risk manager and a behavioural coach. Are they up-to-date on the latest asset classes and their unique risk profiles? Can they translate complex financial jargon into clear, understandable language? Most importantly, can they tailor a plan that reflects your individual needs and risk tolerance?

In today’s world, the role of the adviser is more critical than ever. They need to be equipped with the latest tools and knowledge to help you navigate these complex and sometimes opaque investments. Advisors should use technology to provide you with a comprehensive view of your portfolio and help you understand how different investments fit into your overall strategy.

4. Asking the right questions

Don’t be afraid to ask questions. Challenge your adviser to explain the risks involved in any investment, new or old. Remember, it’s your money, and a well-informed investor is a successful investor.

- What are the liquidity constraints of this investment?

- What are the potential returns, and what risks accompany them?

- How does this investment fit into my overall financial plan?

- What is the investment horizon?

- What are the fees and costs associated with this investment?