An informed decision
Published in the Daily Telegraph, September 2007
After another record day on the stockmarket yesterday (Tuesday 25 September), investors who stood firm in the troubling days of July and August must be feeling proud of themselves.
But over the past couple of months the high level of emotional buying and selling is an indication many investors are being driven by fear and greed, said Wealth Within chief analyst Dale Gillham, yesterday.
He said that mum and ad investors need to be better educated so that they could understand why the market had extreme fluctuations.
‘Decisions based on fear stem from the concern of not wanting to lose money while decisions based on greed result from a desire to make money now,’ Mr Gillham said.
‘In a volatile market these emotions can be amplified particularly when the investor lacks the knowledge and understanding required to manage the investment.’
He said that reading books on investing, attending the basic lunchtime courses at the Australian Stock Exchange and reading what’s on the ASX website can make a difference to the way they handle their investments.
He said people can be lulled into a false sense of security when dealing with brokers or financial advisors.
But extra knowledge means you know what questions to ask when you see a broker or adviser.
‘If you understand the risk, you can ask the right questions and make a more informed decision.’ Mr Gillham explained.
He said the sorts of questions to ask include: What is the product, how does it work, why is it good for me, who’s holding the money, what’s in it for the adviser and what are the returns.
He said some advisers are paid a fee or commission for selling certain products, which means the advisor may only be interested in making themselves some extra money, not necessarily making the investor a profit. “They may be compliance or commission driven, not outcomes driven,’ he said.
‘Historically it has been proven that people with the right education are more successful and achieve better returns than those with little or no knowledge.’
‘It is wise to gain a solid education when it comes to trading the share market so that you are prepared to manage your psychology and the investment in any market condition.’
Mr Gillham said that advisers do have a role to play but recommended investors question the advice.’
‘And under no circumstances should they rely on only one person’s opinion. Make sure they have a track record of delivering solid returns over a period of at least four to five years.’
