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08-06-2011, 07:44 AM
Interesting study. It goes to show even the super-rich are not immune to human emotions of fear and greed, resulting in over-trading.
Business Times - 08 Jun 2011
The urge to trade could hurt
New poll finds that 41% of Singapore's rich believe they have to trade frequently to make money, reports GENEVIEVE CUA
NUMEROUS academic studies show that frequent trading can be damaging to your wealth, but the affluent in Singapore may be oblivious to that.
A global survey by Barclays Wealth has found that 41 per cent of Singapore respondents - with at least £pounds;1 million (S$2 million) in wealth - believe they have to trade frequently to make money. Yet they also wish they had more self control.
Says Peter Brooks, Barclays Wealth behavioural finance analyst: 'People want more discipline. When you have sizeable wealth to manage, the lack of discipline can be pretty harmful . . . Because people trade frequently, the returns they achieve can be lower than when they buy and hold.'
Barclays polled 2,000 wealthy individuals globally for the study, Risks and Rules: The Role of Control in Financial Decision Making. There were 500 respondents from the Asia-Pacific, and Singapore accounted for a fifth of that, or 100.
The report looks into different financial personality traits among the wealthy, and the self-imposed rules and strategies they use to deal with those traits. It says 'emotional' trading can cost investors nearly 20 per cent in returns over a 10-year period. Those who use some control strategies, however, have an average 12 per cent more wealth than those who do not use rules.
Control strategies include a cooling-off period that is typically a feature of investments funds, or a self-imposed practice of waiting a few days before making a decision. Yet another strategy is to set deadlines to avoid procrastination.
In Hong Kong, the proportion who feel they need to trade frequently is 46 per cent. The global average is 32 per cent; and those individuals are also three times as likely to think they trade too much. In Hong Kong, 55 per cent believe they are over-trading, compared to just 15 per cent among Singapore respondents.
Not surprisingly, 47 per cent of Singapore respondents are willing to bear high levels of risk to achieve higher returns. But 61 per cent are actually more concerned with preventing bad things happening than ensuring that good things happen.
'There's a slight disconnect between how people think about taking risk and achieving returns, and their focus on prevention. Those (elements) shouldn't really exist together; there is tension between the two.
'If you go down that road, you could become very stressed which can lead to a poor financial experience.'
Singapore respondents, in fact, report that they are more likely than their global counterparts to become stressed. They are also less likely to delegate financial decision making.
Paradoxically, the Singapore wealthy are the most satisfied with their financial situation (76 per cent) compared to the rest of Asia. The proportion in Hong Kong who are satisfied is 55 per cent, and in Japan it is 52 per cent.
Mr Brooks says the findings suggest that wealth managers have opportunities to provide advice on investment discipline and reduce the damaging effects of over-trading. 'Asset allocation and diversification are great for the long run but for individual investors the route along the way is important.'
Almost half of Singapore respondents wish they had more control over their financial behaviour, compared to the global average of 41 per cent. Globally, the need for increased financial discipline is likely to be felt by those at the wealthiest end of the scale (more than £pounds;10 million in wealth).
An earlier Barclays study found that 73 per cent of Singapore respondents felt financially responsible for their children - the highest in Asia. Mr Brooks said: 'These findings reflect the fact that Singapore HNWIs may let their emotions influence their investment decisions because of a deep sense of family. Even though local investors historically focus on careful planning, they should not shy away from seeking financial counsel.
'In many cases it may not only help them pass on wealth to future generations, but possibly grow their wealth by providing alternative investment options that are aligned to their personalities.'
Business Times - 08 Jun 2011
The urge to trade could hurt
New poll finds that 41% of Singapore's rich believe they have to trade frequently to make money, reports GENEVIEVE CUA
NUMEROUS academic studies show that frequent trading can be damaging to your wealth, but the affluent in Singapore may be oblivious to that.
A global survey by Barclays Wealth has found that 41 per cent of Singapore respondents - with at least £pounds;1 million (S$2 million) in wealth - believe they have to trade frequently to make money. Yet they also wish they had more self control.
Says Peter Brooks, Barclays Wealth behavioural finance analyst: 'People want more discipline. When you have sizeable wealth to manage, the lack of discipline can be pretty harmful . . . Because people trade frequently, the returns they achieve can be lower than when they buy and hold.'
Barclays polled 2,000 wealthy individuals globally for the study, Risks and Rules: The Role of Control in Financial Decision Making. There were 500 respondents from the Asia-Pacific, and Singapore accounted for a fifth of that, or 100.
The report looks into different financial personality traits among the wealthy, and the self-imposed rules and strategies they use to deal with those traits. It says 'emotional' trading can cost investors nearly 20 per cent in returns over a 10-year period. Those who use some control strategies, however, have an average 12 per cent more wealth than those who do not use rules.
Control strategies include a cooling-off period that is typically a feature of investments funds, or a self-imposed practice of waiting a few days before making a decision. Yet another strategy is to set deadlines to avoid procrastination.
In Hong Kong, the proportion who feel they need to trade frequently is 46 per cent. The global average is 32 per cent; and those individuals are also three times as likely to think they trade too much. In Hong Kong, 55 per cent believe they are over-trading, compared to just 15 per cent among Singapore respondents.
Not surprisingly, 47 per cent of Singapore respondents are willing to bear high levels of risk to achieve higher returns. But 61 per cent are actually more concerned with preventing bad things happening than ensuring that good things happen.
'There's a slight disconnect between how people think about taking risk and achieving returns, and their focus on prevention. Those (elements) shouldn't really exist together; there is tension between the two.
'If you go down that road, you could become very stressed which can lead to a poor financial experience.'
Singapore respondents, in fact, report that they are more likely than their global counterparts to become stressed. They are also less likely to delegate financial decision making.
Paradoxically, the Singapore wealthy are the most satisfied with their financial situation (76 per cent) compared to the rest of Asia. The proportion in Hong Kong who are satisfied is 55 per cent, and in Japan it is 52 per cent.
Mr Brooks says the findings suggest that wealth managers have opportunities to provide advice on investment discipline and reduce the damaging effects of over-trading. 'Asset allocation and diversification are great for the long run but for individual investors the route along the way is important.'
Almost half of Singapore respondents wish they had more control over their financial behaviour, compared to the global average of 41 per cent. Globally, the need for increased financial discipline is likely to be felt by those at the wealthiest end of the scale (more than £pounds;10 million in wealth).
An earlier Barclays study found that 73 per cent of Singapore respondents felt financially responsible for their children - the highest in Asia. Mr Brooks said: 'These findings reflect the fact that Singapore HNWIs may let their emotions influence their investment decisions because of a deep sense of family. Even though local investors historically focus on careful planning, they should not shy away from seeking financial counsel.
'In many cases it may not only help them pass on wealth to future generations, but possibly grow their wealth by providing alternative investment options that are aligned to their personalities.'
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