5 Financial habits that will pay dividends in 2021 and beyond

After a tough 2020, we’ve been reflecting on what that means for you, your families and your goals. All things considered, I feel we have been lucky here in Australia, but given the continued unpredictability of COVID-19, it’s perhaps wise to remember the lessons we’ve learned that will be worth holding onto through 2021 and beyond.

1. Markets are all about probabilities and risk management.

Or let me say this more bluntly—markets cannot (unfortunately) be timed with precision—by you, me, or any other expert. Let’s say, hypothetically, we had anticipated there was going to be a global pandemic, avoiding the sharp declines in the global stock markets, as you decided to withdraw your investment(s). Even with this knowledge (without a crystal ball), it would have been extremely difficult to predict the timing and strength of the rebound in the market. In this case, the severe downturn has (in many instances) corrected itself within six months. Ultimately, you would likely still be sitting on the sidelines, waiting for a better entry point to get back in.

2. Reconnect with your goals.

The best financial advice is personalised and tailored with strategies to help you reach your goals. If you start feeling anxious about your finances or the state of markets, take a break from day-to-day market monitoring and check in on your financial goals. I’d love to be involved in this process. By reacquainting yourself with your goals, we can adapt and improve—including why you set them in the first place and how your current financial strategy can help you reach them. “Staying the course” is never easy amid volatility or market nerves, but goal setting can help slow down a racing mind, take a breath, and redefine what you really want in life.

3. Be your own devil’s advocate.

If you’re starting to lean toward a change in your financial circumstances (for example, selling an underperforming investment or chasing the latest popular investment trend), ask yourself why someone else might buy/sell that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions but forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite. Or even better—come to me, and we can explore it together.

4. Get to know your biases and turn down the noise.

Reading or hearing about unexpected asset value changes can put any financially-minded person on edge. You’ve hired us to help manage this for you, so one useful tactic is to set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the appropriateness of your investments in relation to your goals.

In relation to this, research shows that understanding our behavioural biases can help us spot them in our decisions. There is a saying that the best financial advisers are just as aware of psychology as they are financial analysis. Taking some time to read about the psychology behind our decisions and emotions is an advancement toward financial independence.

5. “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

This saying is an old favourite that comes from Benjamin Graham, one of the founding fathers of value investing. We’ve seen the full spectrum of fear and greed in the past year—but it pays to be a humble realist. Humans have overcome incredible challenges throughout the centuries, and we are on our way to overcoming the latest challenge. But don’t be fooled into thinking the recovery will be smooth or doomed. It will have speed bumps, with each change in sentiment creating potential opportunities for the intelligent investor.

The Pekada team are well placed as your go-to resource to help you thrive financially, identifying opportunities, navigating future challenges and working towards whatever it is that is important to you. If you want to chat about the above or your personal situation then please get in touch with us.