The psychology of property investors

Posted by Mark Lloyd, Property Mastery Academy on 5 October 2018 | Comments

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Ideally, we’d like all our investments to carry minimum risk but offer maximum return. Unfortunately, these deals don’t come along too often.

Instead, we have to be honest with ourselves and evaluate how much risk we feel comfortable with. And it’s an area that’s different for all of us. This is because our parents, past experiences and future plans tend to shape our views on money and investing.

These combined life experiences influence the type of property investor we are.

what is your attitude to risk

Look at your appetite for risk

If you try to invest in a way that’s against your natural inclinations, you’ll end up causing yourself unnecessary stress. There are plenty of property investment strategies you can choose from – it’s just a case of finding ones that are right for you.

Think about your personality and your values and then weight them up against your financial goals. Your property investment plans should align with your appetite for risk.

You can only begin to make grounded investment decisions once you ascertain whether you want to take a high, medium or low approach to risk. You can then start to develop your property investment strategy accordingly.

Are you in the right frame of mind?

The brain is divided into two areas when it comes to decision making. There’s the rational and logical side that helps you to make decisions based on long-term goals. Then there’s the fight-or-flight reflex – the emotional side that perceives danger.

In times of stress, we tend to switch to the emotional side and look to take some sort of immediate action. Short-term thinking doesn’t help you achieve long-term goals.

A fast reaction isn’t helpful when you need to carefully consider every aspect of a deal. You must curb your emotional desire to move quickly. Avoid making decisions when you’re in a stressful or anxious mood.

How psychometric profiling is being used

Interestingly, wealth manager, HFM Columbus, is reported to be using psychometric profiling to determine clients' attitudes towards investment risk.

The test looks at five major personality traits:

  • Openness
  • Conscientiousness
  • Extroversion
  • Agreeableness
  • Emotional stability

"We’re focusing principally on the 'conscientiousness' variant to ascertain how much or how little the client wishes to engage in the advice process and to ensure we deliver the correct amount and type of information in order for them to make a decision," said Marcus Carlton, a director for the company.

"We anticipate that the client's degree of conscientiousness will inform us if they are rash decision makers or if they make more studied decisions, and the profiler will also look at emotional stability in order to analyse likely reaction to unexpected outcomes – for example severe market volatility – so that we can protect clients and manage their expectations better."

How self-aware are you?

If you search online, you’ll find any number of psychometric tests you can take to help you ascertain your attitude to risk. And if you’re unsure of your own emotional reactions to investment it may be worth exploring this area further.

If you feel you have enough self-knowledge, then it’s just a case of choosing investments that are right for you psychologically. A good exercise is to explore the property market and make a list of potential deals. Review which deals appeal to you and which don’t – and then try to analyse why.

Would you like to learn more about property investment?

Register for our course: An Introduction to Property Investing

Our Property Investing Masterclass will help you to understand the different property investment strategies that you can use in today’s property market.

Dates: 11 and 12 October 2018 or 30 November and 1 December 2018

Venue: Park Inn Hotel, Heathrow

Book Now!  Limited to just 30 places

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