BUSINESS NEWS - The biggest threat to your financial success isn't a depressed market, a recession, or a bad investment - it's you.

Decades of research in behavioural finance confirm that the human brain is wired to make expensive decisions, often sabotaging perfectly good financial plans. We call this the "behavioural tax." 

Effective planning starts with managing the psychology of money, not just the assets. The role of a financial adviser is to act as an objective behavioural coach, providing the structure you need to achieve your long-term goals.

There are numerous ways in which your emotions – and knee-jerk reactions - can cost you money. Your natural, emotional factory settings kick in during market stress, often compelling you to buy high and sell low. Recognising these common biases is the first step toward overcoming them. 

Your brain is wired to lose money in three ways:

• The psychological pain of a financial loss is roughly twice as potent as the pleasure of an equivalent gain. When markets drop, loss aversion – one of the more powerful biases - drives you to panic-sell (locking in a loss) simply to avoid the feeling of losing more, completely undermining your long-term strategy.
• Your brain tends to fixate on the first piece of information it receives. For investors, this often means clinging to a previous high watermark or a purchase price. You become "anchored" to that price, making it difficult to buy into a dipping market or sell when an investment has peaked, waiting instead for a potentially unrealistic return.
• Humans are social creatures, and in times of uncertainty, we look to the crowd for safety. This translates into herd mentality in the markets: buying an asset when everyone else is buying (often at the peak) or selling when everyone else is selling (often at the bottom). Following the crowd feels safe, but it’s a direct path to the highest behavioural tax.

Traditional financial advice focuses on your income, balance sheet, and goals. Momentum Advice adopts a hyper-personalised approach, built on the solid human foundation of your core money attitudes.

We use our proprietary psychometric tool, the Money Fingerprint, which comes before traditional financial planning. This tool goes far deeper than typical industry risk profiling which merely measures your perceived risk for a specific product. 

Instead, the Money Fingerprint assesses your underlying, stable psychological risk attitude - your "factory settings" around money. It identifies key, enduring personality traits, including:

• Prudence: Your level of future orientation and planning.
• Anxiety: How prone you are to worry and panic during market volatility.
• Prestige: Your relationship with money as a measure of identity or status.

If a client is highly anxiety-prone, we know they are at high risk of paying the behavioural tax by switching to cash during a downturn. Because the Money Fingerprint provides this clarity in advance, your advisor can pre-inoculate you. 

This means we design a plan, a communication strategy, and even a written commitment before a crash happens, preparing you emotionally so you can stick to your long-term goals when the pressure is on.

The Money Fingerprint gives The Momentum advisor the nuance to treat you as an individual. Two clients with the same net worth and age may have vastly different financial behaviours. 

The tool allows us to align advice with who you are (for example, your need for detailed information versus a simple one-page plan or how much handholding you require), not just what your balance sheet says. This focus on your conscientiousness and emotional triggers is the science of success in execution.

The primary role of the adviser is to provide the objective, external structure necessary to override costly natural human tendencies. By integrating the Money Fingerprint insights, we keep you focused on your long-term plan, connecting sound financial decisions to your overall personal wellbeing not just during market volatility, but for life. 

This commitment to securing tomorrow is central to Momentum’s Science of Success, which unpacks the vital role of advice.

Emotional decisions are expensive which is why it is important to move beyond simple portfolio management to address the psychology of money and plot a holistic path to wealth.

Article: Cebile Zibi, Momentum Advice’s Head of Trade Marketing

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