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Blog | Steering away from the herd mentality

Alison Dellow
Private Client Adviser
8 Dec 2021

Herd mentality is a very common investing psychology that refers to an investor’s tendency to follow and copy what other investors are doing. In this week’s blog, Alison Dellow writes about going against the grain to get the grain.

Investors who experience the psychology of the herd mentality are largely influenced by emotion and instinct rather than their own independent analysis.

Herd mentality can be seen in many aspects of life. Fads are born because ‘everyone is doing it’ as people simply want to get involved. Like we have seen in the past couple of years, uncertainty can create fear for many investors that can lead to rushed, irrational decisions regardless of whether you are investing in the share market, property market or even taking your chances in buying crypto-assets.

The thing is, as humans we are hard-wired to herd and often find it emotionally or psychologically painful to go against the herd. So how do we get around this when investing?

We prepare a long-term investment strategy with varied asset classes based on your long-term objectives in mind and stick to it. Yes, even through the peaks and troughs of the market.

Instead of letting our biases take over, it becomes a case of rebalancing the investments back to the set allocation when certain asset classes perform either positively or negatively. As a result, we take profits in a rising market (when the herd is often buying) and we can look for great opportunities in a falling market (when the herd is often selling).

While this is not as exciting as picking the ‘next big thing’, it takes out the unknown and drives far more thoughtful and strategic decision-making.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.