7.1.9 Personal values, emotions and behaviours

From: Financial Consumer Agency of Canada

When you make investment decisions, you need to get solid information and consider factors like risk, rate of return, effects of inflation, fees and taxes. But you also need to be aware of other factors that may affect your financial choices: factors like personal habits, values, emotions and behaviours.

Here are some examples:

  • Emotions: Every year, Julie's dad gives her a few shares in a variety of companies. She thinks that they are not shares that she would choose, but she keeps them anyway. "I don't feel comfortable asking Dad about his gifts," she thinks. "Besides, he is my dad and I trust his judgment." The shares that Julie's dad gives her may be good investments, but if Julie doesn't ask about them, she won't know if they are good for her needs. Her dad may not know the best ways to meet Julie's investing objectives, and his opinions may be affected by what he feels would be best for her. Julie should check with an expert regularly to see if the shares are a sound investment for her investment goals.
Julie relies on her dad's investment advice.
 
  • Habits: Kailai's investment advisor sends him a document every year. He's supposed to read it over and fill in the options to tell the advisor what his investment goals are. Usually he puts it on his desk and doesn't think about it. When he talks to his advisor, Kailai tells the advisor there's nothing to change. Kailai's inaction may be misleading his investment advisor. It's a good idea to review your investment goals every year with your advisor.
Kailai doesn't read his investment statements.
 
  • Behaviours: Alicia likes to make decisions boldly, with no halfway steps. She got a $2,000 bonus in her job after a good year of sales, and decided to invest it for the future. When her investment advisor told her about a mutual fund that invests in new technologies with potential for rapid growth, she made a quick decision. "That suits me," she said. "I like to see things move quickly." Bold decisions may have helped Alicia get her bonus, but they can be very risky. She should think carefully about her investing goals before making a quick decision.
Alicia likes to act boldly, even when investing.
 
  • Values: Dylan believes that protecting public health is essential. When he talked to his investment advisor, he told her that he would not invest in any company that makes or sells tobacco products. "This is important to me," he told her. "I can't put money in something that goes against my values." Values may be important, but they should be balanced with other investing objectives. Dylan may find that money he needs in the future is not available if his investments are not financially sound.
Dylan says ethical investing is important to him.

 

When you invest, remember that you are making choices that can significantly affect your future. Carefully consider all the information you have, and ask for more if you need it. Think about how your own personal habits, values, emotions and behaviours affect the investment choices you make. Evaluate them together with the factual information you have before making a final decision.

Use this chart to review your decision-making each year when you review your investments. Mark the answer to the question at the end of each section.

My habits, values, emotions and behaviours

Yes No Sometimes

Financial habits are the activities you repeat without thinking, such as:

  • buying a coffee each day or going out for dinner every Friday
  • putting a fixed amount each month into a savings account.

Are my habits helping me to invest wisely?

Personal values can affect financial choices, such as:

  • avoiding anything that could reduce my family's financial security
  • preferring companies with a positive social record.

Are my values consistent with my investment goals?

Emotions may cloud the financial judgments you make, such as:

  • trusting the suggestions of a member of your faith or social group
  • following a financial advisor's suggestions because you don't want to hurt his or her feelings.

Are my emotions supporting my ability to analyze an investment and make a clear decision?

Financial behaviours are the ways you conduct yourself that affect your finances, such as:

  • acting impulsively and relying on intuition
  • thinking things through, acting methodically and researching.

Are my behaviours supporting my ability to act in a careful and thoughtful way when I invest?

What steps can I take to make sure my habits, values, emotions and behaviours do not limit my investment choices and actions? (For example, schedule a regular review with my advisor; write down pluses and minuses before making a decision; set up low-cost rewards like a cheap movie or music download when you resist a costly habit; etc.)



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