Investing is often described as a numbers game, but in reality, it’s just as much about psychology as it is about maths.
Markets move on data; investors move on emotions.
Fear, greed, and overconfidence can lead to decisions that feel right in the moment but cost dearly over time.
Table of Contents
The Cost of Emotional Decisions
The Long-Term Impact of Behaviour
Why Do Investors Underperform?
The Adviser Advantage: More Than Investments
What Is That Worth in Numbers?
The Bottom Line: Discipline Pays
Decades of research shows that emotionally driven decisions, such as panic selling during downturns or chasing “hot” stocks during rallies, are among the biggest drags on investor performance.
The DALBAR Quantitative Analysis of Investor Behaviour (QAIB) report, widely regarded as a benchmark for measuring investor behaviour, highlights this gap clearly:
The chart below looks at equity returns over the three calendar years 2022 to 2024, comparing returns available for investors (the S&P 500) and what they actually participated in on average:
In bad years and good years, the average investor still struggles to make effective investment decisions.
If, for example, you were to look at your $1,000,000 of capital at the start of that period, the average investor would have fared as follows:
Over that three-year period, the market investor ended up with 16.54% more capital than the average investor - equivalent to $183,574 on a $1,000,000 portfolio.
Imagine leaving that much money on the table purely because of timing and emotional decisions.
Even if you then manage to avoid further emotionally driven decisions from the end of 2024, the compounding impact of missing out on that 16.54% remains significant.
If markets deliver 7.5% p.a. over the subsequent 10 years and you now earn that full 7.5% (i.e. you no longer fall into the same behavioural traps), the initial $183,574 shortfall widens to $378,351 over the next decade. This is why we view these behavioural mistakes as a permanent loss of capital, not just a temporary setback.
Over longer periods, the picture is even more sobering.
DALBAR’s long-term studies have shown that over 20-year horizons, the average equity fund investor often earns annualised returns of around 4-5%, compared to 9-10% for the S&P 500.
That gap compounds dramatically over time and translates into hundreds of thousands, or even millions, of dollars in lost wealth for long-term investors.
For example, over the 20 years to 31 December 2024:
That’s a difference of $4,052,204 - a life-changing amount of capital.
Letting markets do the heavy lifting for you makes a staggering difference. The challenge is that we often get in our own way.
The primary culprit is emotion.
Behavioural finance research has identified several recurring biases:
These behaviours often result in buying high, selling low, and making frequent changes - exactly the opposite of what successful, long-term investing requires. Over time, these actions can crystallise into a permanent loss of capital.
It is easy to fall into the trap of thinking: “But I’m not like everyone else”.
Unfortunately, that confidence is itself a classic behavioural bias. The good news is that you can:
A key way to do this is by putting a structure and a professional in place between your emotions and your money.
This is where a financial adviser can add real value - not just in portfolio construction, but as a behavioural coach.
A good adviser helps you:
Think of your Adviser as a sounding board and “sanity check” before impactful decisions are made.
When clients contact us wanting to make a change, we, typically:
When we do this, the vast majority of clients, about 99%, ultimately stick to their plan rather than acting on short‑term emotion.
According to the Russell Investments “Value of an Adviser” Study, financial advisers can add up to 5.7% in value annually through a combination of:
In Australia, various studies suggest that working with a financial adviser can increase annual returns by around 1.5% to 3%, even after accounting for fees.
For investors with substantial portfolios or complex affairs, this can mean tens or hundreds of thousands of dollars more over time, simply by capturing more of what markets already offer and avoiding self-inflicted damage.
Markets will always fluctuate. Emotions will always be part of the human experience. The real question is whether those emotions sit in the driver’s seat of your investment decisions.
The evidence is clear:
If you want to capture more of what the market offers (and avoid the pitfalls of emotional investing) consider partnering with a qualified, independent financial adviser who can act as a Fiduciary for your wealth, sitting on your side of the table.
In the end, it isn’t about beating the market every year. It’s about giving yourself the highest probability of achieving your goals, with less stress and more confidence along the way.
The information provided is factual only and does not constitute financial advice. If you need to speak with a Financial Adviser before making a decision, you can contact us via the button below.