Positive Procrastination An Investor's Best Friend

Procrastination and inertia can, of course, be highly damaging behavioural traits for investors.

For instance, investors are likely to pay dearly for never quite getting around to saving seriously for retirement until their final few years of regular work.

There is, however, a critical difference between potentially damaging procrastination or inertia and an investor’s determination to adhere to an appropriate long-term investment strategy during periods of intense market volatility.

In other words, there are times when doing nothing can work very much in an investor’s favour. Yet as behavioural economists tell us, investors often feel an urge to take some action, any action, when market volatility sharply rises.

A diversified portfolio with an appropriate strategic or target asset allocation is designed to cope with changing market conditions as it works progressively towards achieving an investor’s long-time goals. It is intended to cope with some rough rides along the way.

Examples of damaging investment inertia and procrastination include putting off: setting up a proper financial plan, increasing salary-sacrificed super contributions, and making crucial changes to portfolios when necessary.

Smart Investing has long discussed a series of Vanguard research papers in Australia and the US that aim to quantify the value that financial advisers can add as behavioural coaches or personal trainers. This added value has been tagged in these papers as adviser’s alpha.

Key roles for a financial planner as a behavioural coach are to convince clients to stay the course during bull and bear markets, and not to allow emotions to dictate their investment decisions. In other words, it can be advice to do nothing when appropriate.

Yet on the other hand, advisers in their role as personal trainers or coaches can add value by prompting clients to overcome destructive inertia and procrastination by taking action, again when appropriate. This may involve doing such thing like beginning 2016-17 by considering whether to increase salary-sacrificed super contributions.

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.

As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

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