Executive summary

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This volume looks at the emotional responses and biases that have a negative impact upon investors’ choices.

Classical versus rock'n'control 3 of 8 Introduction 1 of 8

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

Desire for discipline: Despite being wealthy, nearly half of the investors polled in this report acknowledged that they want more self-control of their financial behaviour. Women were more likely than men to have a greater desire for self-control. Desire for discipline also changes with source of wealth. Those whose wealth has come from earned or investment income are less likely to want more control. However, where wealth is derived from inheritance, high net worth individuals are aware of a need for discipline, perhaps due to their need to be accountable for the legacy they are managing. Similarly, entrepreneurs and those whose wealth comes from property or large bonuses are more likely to have a high need for discipline.

The trading paradox: The survey exposes an interesting contradiction on the theme of overtrading. Previous research has shown that excess trading can compromise returns; however, many high net worth individuals believe that you must trade frequently to do well in the markets. These same individuals suspect that they overdo it because they are over three times more likely to believe they trade too much. In fact, almost 50% of traders who believe you have to trade often to do well think they buy and sell investments too frequently. This overtrading is associated with a desire for a more disciplined approach to their finances. In addition, low composure, concern about preventing bad things from happening and a high appetite for risk increase the likelihood of trading too much.

The gender difference: Whilst the research finds differences between individuals within all the groups, there are several robust personality differences between men and women when looking at these groups in aggregate. Men tend to have a higher risk tolerance, being more likely to label themselves "financial risk takers" and having a greater openness to choosing high risk investments. Men have more positive views on the benefits of frequent trading and timing the market, yet - consistent with the trading paradox – they are more likely to believe they trade too much. Men have higher composure than women; that is, they are less likely to believe they are easily stressed. Women tend to have lower composure and a greater desire for financial self-control, which is associated with a desire to use self-control strategies, and women are more likely to believe that these strategies are effective.

Age really does make you wiser: The adage that we mellow with age rings true in this report. Age is characterised by calm, acceptance and satisfaction. The data suggest the idea of happiness in old age also transfers to the way we approach our finances. In fact, even if wealth levels do not change, with increasing age the wealthy gained a calmness and confidence in their approach to financial management.

High stakes: A significant difference emerges when we look at the relationship between worth and financial personality traits. Those with greater income and wealth have higher risk tolerance levels. The pattern behind this observation is extremely robust. Having a risk-seeking personality has its own challenges – it is clearly related to a higher desire for financial self-control.

Rules rule: The report shows that investors use many types of decision-making strategies to control their decision-making process. The most popular include setting deadlines to avoid procrastination and using cooling-off periods to reflect on decisions. Respondents believe that rules are more effective in their financial lives rather than in life more generally.