As an adviser and now a coach, I often spoke to my clients about the ‘Behaviour Gap’. What is the Behaviour Gap, well when it comes to finance and monetary terms, it has been calculated as getting roughly 4% per annum (pa) better return with professional advice/fund managers invested rationally. Compared to investors doing it themselves when many make choices based on emotions. (Returns difference over last 30 years of 8.2% pa compared to 4.25% pa average returns – research provided by Dalbar Institute of USA).

Bluntly what causes the behaviour gap is that simply investors do the wrong things at the wrong time – due in the main to our emotions getting in the way of good judgement.  

I have done a fair amount of research into this as it has always fascinated me how as humans we react so emotionally when there are major drops or rises to the share market but not when it comes to say property. Personally, I feel this is in the main that we can see and feel bricks and mortar, and only really worry about the price when we want to buy or sell.  Whereas shares we see daily ups and downs and can be stressful looking at the value of your funds change. I do say to my clients, think of your shares or super only once a year as it is the long-term trend (which is usually up) is all that matters, not what happens on a daily basis.

I definitely understand it is your hard-earned money and if you see it drop, there will always be in the back of your mind, ‘what if?’. What if it never recovers, what if I won’t be able to retire, what if I will need to work for another 10 years to make up for it?  But do the facts back this up? As these questions are not new or unique as there is a share market drop about once every ten years, and yet the same repeated mistakes happen every time. 

Carl Richards who wrote the book The Behavior Gap – Simple Ways to Stop Doing Dumb Things with Money says is all about controlling your emotions. A great quote from his book states “It’s not that we’re dumb. We’re wired to avoid pain and pursue pleasure and security. It feels right to sell (your investments/shares) when everyone around us is scared and buy when everyone feels great. It may feel right-but it’s not rational.”

It doesn’t help when the media are reporting “The world is ending” or “share market plummets” or “Sell, Sell, Sell”, all very emotional and yet the facts are share markets have always rebounded, it’s just no one knows when and so hard to time but it has always happened.

To my clients, I have always explained share market drops are to be expected, as I mentioned around every 10 years or so but the other 9 years, the sharemarket will do so well it will well and truly make up for any drop in that one year. Take just the last major drop in 2020 compared to the previous one in 2008 the Global Financial Crisis. Putting your money in term deposits for this period of time, yes would never have a negative return and would have received only 3% pa on average during that time. The share market, even though saw a negative return of 10% in 2020, it overall received nearly 11% pa on average over this time. I personally would prefer 11% every year on average for my funds than 3% pa, even with a bad year every now and again.

To put it in another perspective when the share market drops, rather than panic as everyone else does and sell, see it as more as Boxing Day sales time.  The dress or suit you saw the day before for $800, and the next day, is now $400 – it is the same dress or suit, it is now just on sale. The same with say Westpac shares, one day they were $30 a share and the next day due to usually something that happened in America such as an election, (they say if USA sneezes, Australia catches a cold!), it is now $20 a share. It is still the same company, earning the same profits, doing the same thing – so look at this as an opportunity to buy, not sell – as they are now on sale. If you already have the shares, you hang onto them as they will rebound based on history, we just don’t know when.

A common story you see when the share market drops is the couple who can’t retire as their superannuation has now dropped by 20% and they will have to work for another 5 or 10 years to make this up.  Yes, it looks great on A Current Affairs but what they don’t show is after a period of time, when the market recovers and funny enough that couple can now retire and not have to keep on working.  In 2020, the market recovered in less than 4 months.

As Jody Fitzgerald from Morningstar said on my recent podcast, yes there is a risk in investing in shares but the greater risk is having our money run out on us as we are all living longer. So understanding shares may not be your favourite topic but improving your knowledge when it comes to this area is important, as we all need to have our money working hard for us, and for as long as possible.

So if you can see your shares and superannuation as long term investments, ride out the ups and downs, not sell when everyone else is panicking, than you will most likely be fine.  If that is not you and it will cause possible anxiety and stress and worse, making an emotional or rash decision, than maybe it is time to build your knowledge and understanding around this area (hopefully this article has been a good start). As for most, superannuation will be their biggest or second biggest asset besides their own home. Or better still, ask for help by a financial professional who could look after this for you – as don’t you have better things to do with your time!     

As a final point on the share market and behaviour gap, Warren Buffet, the world-famous investment guru once said “I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful.” In other words, do the opposite of what most other amateur investors do, you should only sell when share markets are high, and buy when share markets are low.

Happy investing and plenty of more tips and help in our book and website “The Money Sandwich”.


Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich