Categories
Investments

How Do Your Emotions Actually Impact Your Investments?

How Do Your Emotions Actually Impact Your Investments?

“Unconscious bias is one of the hardest things to get at” — Ruth Bader Ginsburg

3 min read

Emotions in Investing

How Do Your Emotions Actually Impact Your Investments?

“Unconscious bias is one of the hardest things to get at” — Ruth Bader Ginsburg

3 min read

Investing is not just a numbers game. Whilst data, trends, and financial reports drive rational investment decisions, emotions can often get in the way, impacting our judgement.

This phenomenon is known as emotional bias, and it can be a significant hurdle if you are looking to build long-term wealth.

What Is Emotional Bias in Investing?

Emotional bias occurs when your decisions are influenced by your emotions, often leading to irrational behaviour. Whether through fear, greed, or even attachment to a particular stock or asset, emotions tend to cloud our judgement.

The result is that our decisions may go against sound financial principles or long-term investment strategies.

You may fall prey to these biases by holding onto a stock for too long, buying into a popular trend at its peak, or avoiding necessary risks. Emotional bias can derail your from your investment plan, which can ultimately damage your portfolio’s growth potential.

Common Emotional Biases

 Some common examples of emotional bias that can affect you include:

  1. Loss Aversion: You can often fear loss more than you might value gains. This leads to reluctance in selling losing investments, hoping they will recover, even when the rational decision might be to cut losses.
  2. Overconfidence: You may believe you can ‘beat the market’ and trust your intuition over data. This overconfidence often results in excessive risk-taking.
  3. Herd Mentality: Following what others are doing, whether it is chasing a popular stock or pulling out of the market in panic, can lead to poor decision-making.
  4. Endowment Effect: This bias makes you overvalue your own assets simply because you own them. The emotional attachment often prevents selling at a logical point, despite declining performance.
The Danger of Not Selling an Asset in Time

One of the more dangerous aspects of emotional bias in investing is when you hold onto assets longer than you should, particularly if you have a set target value.

Consider a scenario where you buy a stock, thinking you will sell once it hits a 20% gain.

The stock reaches that target, but instead of selling, you hold on because you believe the price will continue to rise.

It is quite easy for emotional biases to take effect in this example, especially greed and overconfidence, and you may fail to sell the stock even when it aligns with your original set target value.

Should the stock eventually decline, so too would you lose the gains you had aimed to achieve in your original strategy, a too-common example of how emotions can sabotage investment decisions.

Fear and Greed: The Two Dominant Forces

Fear and greed are often the primary drivers of emotional bias.

When markets are volatile, fear can lead to panic-selling or avoiding investments altogether, missing out on potential gains.

On the other hand, greed can lead to chasing trends or holding onto investments longer than is sensible, as seen in the above example of not adhering to a predetermined investment strategy in favour of the possibility of greater gains.

How to Manage Your Own Emotional Bias

There are some key ways to manage and reduce the impact of emotional biases when it comes to investing.

These include: 

  1. Have a Plan: A well-constructed investment plan can serve as an anchor during times of market volatility or emotional stress. It helps you stick to your strategy and avoid rash decisions based on emotions.
  2. Set Clear Goals: By having clear entry and exit points, you are less likely to be swayed by short-term market movements. Know your risk tolerance and your long-term objectives.
  3. Avoid Checking Your Portfolio Too Often: Constantly checking your investments can heighten emotional responses to short-term price movements. Instead, schedule regular check-ins (quarterly or annually) to review your portfolio objectively.
  4. Diversification: A diversified portfolio can reduce the emotional rollercoaster associated with holding individual stocks or assets. Spreading your investments across asset classes, sectors, and regions minimises the impact of any one investment’s performance.
The Importance of Discipline

Successful investing is about discipline.

When you allow your emotions to dictate your actions, you stray from a more rational investment strategy.

Discipline means sticking to your plan, whether the markets are soaring or plummeting, and not letting short-term noise alter your long-term goals.

Is Emotional Bias Hurting Your Investments?

Emotional bias can be a major hurdle in achieving financial success.

While it is impossible to remove emotions from investing completely, investing should be driven by data, logic, and a solid financial plan — not emotions.

If you want to have an actionable plan of your own, or indeed find out more about how to manage emotional bias in your personal investment strategy, get in touch with Patterson Mills today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Pensions

Your Essential Guide to the UK State Pension

Your Essential Guide to the UK State Pension

“A generous basic state pension is the least a civilised society should offer those who have worked hard and saved through their whole lives” — George Osborne

5 min read
UK State Pension Credit Card

Your Essential Guide to the UK State Pension

“A generous basic state pension is the least a civilised society should offer those who have worked hard and saved through their whole lives” — George Osborne

5 min read

Receiving the UK State Pension is an important milestone for millions of people across the UK, and even those abroad. Reaching State Pension Age (SPA) represents the age at which individuals become eligible to claim their State Pension.

A State Pension is a government-provided financial benefit designed to help people during retirement.

Understanding the state pension, how it’s changing, and its implications is crucial for anyone planning their future finances.

UK State Pension Changes on 6 April 2016

The first important point about the UK State Pension is that it changed on the 6th April 2016 to become the “New State Pension” for those who reach State Pension age from that date onwards. This includes men born on or after 6th April 1951 and women born on or after 6th April 1953.

Before the 6th April 2016, there was the “Basic State Pension” which was for those who reached the State Pension age before that date.

As you will already be receiving the Basic State Pension if you were eligible (thus hopefully already know how much you should be receiving!), we will be looking at the New State Pension in this article.

Who is Eligible?

The New State Pension is a regular payment from the UK government to people who have reached the qualifying age after 6th April 2016 and have made sufficient National Insurance contributions (NICs) over their working life.

‘Sufficient’ NICs means that you have at least 10 qualifying years of contributions, with 35 qualifying years of contributions being required for the full New State Pension.

The UK State Pension is separate from any workplace or private pensions that you may have and, as of the date of this article, is not means-tested, so everyone with enough qualifying years, and has reached State Pension Age, is eligible.

What Is the Current UK State Pension Age?

Remember, the State Pension Age is not fixed; it has been gradually rising due to increased life expectancy and demographic changes.

In addition, each year that the State Pension Age is increased is a year that the UK Government does not have to pay the State Pension. Therefore, this saves the UK Government a significant sum of money over time.

 Currently, as of the date of this article, the UK State Pension Age is:

  • 67 years for both men and women

However, if you were born before 6 April 1968, please see the below table:

UK State Pension Age for those born before 1968
 

We expect the State Pension Age to continue increasing over the next decades.

How Much Do You Receive?
The amount you receive under the New State Pension system (as of the 2023/2024 tax year) is up to £221.30 per week although this amount may increase based on annual reviews (see the “Triple Lock” below).
 
For those receiving the Basic State Pension (before 6th April 2016), the maximum is £156.20 per week, but they may also be eligible for additional pension benefits based on factors such as earnings and NICs.
What is the “Triple Lock”?

The “Triple Lock” is a system that was implemented by the Conservative-Liberal Democrat coalition Government in the UK back in 2010 that ensures the UK State Pension kept pace with the rising cost of living.

Under the triple lock system, the State Pension increases each April in line with the higher of:

  1. inflation in the September of the previous year, using Consumer Prices Index (CPI)
  2. the average increase in total wages across the UK for May to June of the previous year
  3. 2.5%

Since July 2024, Chancellor Rachel Reeves has said the Labour government will keep the triple lock until the end of the current Parliament.

Can You Claim Your State Pension Early?

In general, you cannot claim your UK State Pension before reaching the qualifying age. 

The State Pension is not flexible like some workplace or private pensions, where early access may be available (albeit perhaps with certain reductions).

However, you are not obliged to claim your State Pension pension as soon as you reach the State Pension Age. Hence, you can defer it. This may increase your weekly payments when you do decide to claim it in future.

How to Check Your State Pension Age and Forecast

The easiest way to check when you will be eligible for the New State Pension and how much you may receive is to:

Can You Still Work After Reaching State Pension Age?

You can continue to work after reaching the State Pension Age.

Your State Pension will not be affected by your earnings.

Furthermore, once you hit this age, you no longer need to pay National Insurance contributions on your income, which can make working more financially beneficial.

What Happens if You Do Not Qualify for the Full Pension?

If you do not have the full 35 years of National Insurance contributions, you might still be eligible for a partial pension. 

If you wish to try and increase your pension entitlement, you can consider making Voluntary National Insurance Contributions.

These voluntary payments can fill any gaps in qualifying years you may have, therefore increasing your state pension entitlement. However, these are not suitable for everyone and you should take professional advice from Patterson Mills prior to making this decision.

The UK State Pension and Your Retirement Planning

The UK State Pension provides a foundational level of income in retirement, but it is unlikely to be enough to maintain a comfortable lifestyle in retirement.

Hence, it is crucial to think about additional savings, like your workplace pension, private pension(s), and general savings and investments to supplement the State Pension. 

With State Pension ages around the world rising at varying intervals, it is vital to talk to Patterson Mills. Get in touch today and book your initial, no-cost and no-obligation meeting to ensure you are making the right decisions for you.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.