Why Psychology Holds You Back from Hitting Your Investment Goals

Investing for the future, whether for retirement, a child’s education, or financial independence, is one of the biggest financial decisions you will make. Yet, despite having access to more information than ever, many people struggle to stay disciplined, make rational choices, and commit to a long-term plan.

Christopher Bowler, a senior financial adviser with clients across Africa and Europe, believes the biggest challenge faced by investors is not market volatility, but their own behaviour. Psychological biases often lead to impulsive decisions, delays, and costly mistakes. By recognising these behavioural traps, investors can take the first step toward improving their decision-making and reaching their long-term financial goals.

How Human Behaviour Derails Investing

The key to successful investing is consistency, but psychological barriers often get in the way. Recognising these behavioural traps can help investors make more rational decisions and stay on track with their long-term financial goals.

• Loss Aversion: People tend to feel losses more acutely than they appreciate gains, which often leads to panic-selling when markets dip. This emotional reaction can lock in losses and prevent long-term growth.
• Overconfidence: Some investors believe they can outsmart the market, leading to excessive trading or risky bets. However, frequent trading often results in higher costs and underperformance compared to a steady, long-term strategy.
• Confirmation Bias: Many investors seek out information that supports their existing views while ignoring contradictory evidence. This can lead to poor diversification or holding onto underperforming investments for too long.
• Procrastination: Delaying financial decisions, whether due to fear, uncertainty, or lifestyle spending, can result in significant shortfalls later in life. Even a few years of delay can make a substantial difference in long-term wealth accumulation.

By identifying these psychological barriers, investors can take steps to counteract them, whether through structured planning, external guidance, or simple strategies like automating investments to remove emotion from the equation.

Understanding how emotions drive investment decisions is key to improving long-term outcomes. Stay informed about market trends and the psychological factors influencing investment decisions with our latest commentaries.

The Cost of Going It Alone

Without a structured plan, many investors fall short of their financial targets. Research highlights just how difficult it is to achieve success without professional guidance. A 2023 study by the Employee Benefit Research Institute found that only 44% of American workers feel confident about their retirement savings, but among those without an adviser, that confidence drops to just 25%. Similarly, while 56% of parents intend to save for their child’s education, only 29% have an actual plan in place, according to Sallie Mae.

Investors who try to manage their portfolios alone often see lower returns. A study by Vanguard found that self-directed investors earn an average of 1.7% less per year than the market due to emotional decision-making and poor timing. Over decades, this gap can result in hundreds of thousands in lost returns.

How Advisers Keep You on Track

An adviser does far more than recommend investments. They help investors stay focused on their long-term goals, providing structure and discipline to prevent emotional decision-making. During periods of market volatility, they offer perspective, helping clients avoid panic-driven mistakes. Without this guidance, many investors sell at the worst possible time, derailing their financial plans.

Beyond managing emotions, advisers provide personalised strategies that align with each client’s financial objectives. Many investors struggle with setting clear goals, and without a structured plan, it is easy to get off track. Advisers act as behavioural coaches, ensuring clients avoid impulsive reactions that could erode returns. They also adjust strategies as life circumstances change, whether due to career moves, unexpected expenses, or family growth. This adaptability provides stability and confidence, helping clients stay on course no matter what challenges arise.

The Long-Term Difference an Adviser Makes

To illustrate the impact of professional guidance, consider two investors. The first starts investing £500 per month at age 35, earning an average return of 7% per year. By retirement, their portfolio is worth approximately £606,000. The second investor, who makes decisions alone, earns 1.7% less per year due to poor choices. Their portfolio ends up at £450,000—a £150,000 shortfall. The difference? Professional guidance that prevents costly mistakes and keeps them on track.

Why Some People Resist Seeking Advice

Despite the clear benefits, some investors hesitate to work with an adviser. Cost is a common concern, with many believing professional advice is expensive without considering the long-term value it provides. Others assume they can manage their investments alone, underestimating how behavioural biases affect their decisions. Mistrust also plays a role, as negative perceptions of the industry can make people reluctant to seek guidance. However, these concerns often pale in comparison to the financial losses caused by poor decision-making or a lack of proper planning.

Take Control of Your Future

Investing is not just about choosing the right assets. It is about managing behaviour, avoiding common mistakes, and staying committed to a long-term plan. Working with a financial adviser provides structure, discipline, and expert insight, ensuring you stay on track even when markets are unpredictable.

Want to avoid the biggest psychological traps in investing? Speak to a Skybound Wealth adviser today for expert guidance tailored to your goals.