Belfast Telegraph

My experience 'on the couch' with a personal finance analyst

By Jane Hardy

What sort of investor are you? This may seem an unnecessary question when many people are too squeezed to save, but the answer is important in terms of galvanising the broader economy.

Not to mention in making any spare cash you do have go further. So last week I stepped onto the financial couch at Barclays' sixth floor offices in Donegall Square, Belfast, and learned about the bank's methods for making their investors feel comfortable on their "investment journey". As Jeeves would have said, it's all about the psychology of the individual.

First I filled in one of those multiple choice forms with lots of questions about whether I'd rather have a steady return on my (imaginary) savings or would feel peeved if the stock market spiked and produced higher returns. Well yes, I might. And how much would I trust the experts to manage my money? Quite a lot. How quickly would I like to be able to change investment direction? Like a top of the range 4x4.

The new discipline is a bit of a mouthful. Dr Greg Davies (38), the expert who took me through the procedure, is Head of Behavioural and Quantitative Investment Philosophy at Barclays, but in essence this new banking approach is all about combining psychology and economics to tailor products to clients' deeper needs. As Dr Davies, who is also a fellow at Oxford's Business School, said it's based on Nobel prizewinner Daniel Kahneman's 1970s cognitive work on how humans make decisions.

If you match your investors' psychological profile to the right investment, it's apparently win-win with no unnecessary financial angst for the client and obvious benefits for the bank.

My results weren't a surprise. I am fairly risk averse, would trust the experts to run my affairs and have a below average enthusiasm for the market. This is confirmed by my personal investment history which includes buying a property in the unfashionable south of France (sadly long gone) when I was 19 and inheriting a small amount from a grandfather, to snapping up a couple of paintings by a rising Cornish artist I met on a painting holiday. I'd term these sentimental investments, although Greg Davies called it the familiarity bias. "A little bit of familiarity is acceptable in your portfolio, a lot would be inefficient," he warned.

In fact, Dr Davies wouldn't recommend straightforward property investment at all when I revealed I'd fantasised about putting money into houses in Northern Ireland, now at bargain prices.

"Bricks and mortar are actually an illiquid investment and can't be realised quickly when you want." Much better to go for a property fund investment which spreads the risk.

Diversification is definitely the name of the game and although I'm something of an investment dweeb, all hope was not lost.

"While you can't change your personality, you can be a good investor regardless of personality," Dr Davies reassured. And although my risk tolerance wasn't high, it wasn't the lowest either.

Ironically, as he pointed out, his and my financial profiles were perfect opposites. At this point, I gave myself a virtual £100,000 windfall to invest. What advice would Dr Davies give? "As you have low composure and wouldn't enjoy the bumpy investment ride, we'd look for something which had good returns but also brought protection – hedge funds with a manager with a record of doing well in downturns. And as you were inclined to delegate, index funds, tracking products and ETFs."

It's important, however, to try to overcome one's fear of investing. The downturn has produced some scary statistics. Dr Davies elaborated: "Investors who aren't investing at the moment will have lost around 75-80% in interest."

Ouch.

Understanding the emotional subtext of our financial behaviour reveals some surprising things. Winning a large sum, for example, might not be all Champagne and Ferraris. "We're not equipped to deal with huge changes and it could lead to poor investment decisions."

It's true that when life seems positive we may abandon common sense – as when I bought my Belfast home in a bidding war at the height of the boom. We need to harness both intuitive and rational impulses, buy low and sell high.

This process has made me rethink my financial habits. One investment habit I share with a lot of the population is gambling on the lottery. But having considered the amount we all throw hopefully into this statistically unrewarding maw, I might save the £50-£100 per annum and do something else with it.

I asked Dr Davies whether it was important to factor ethics into a client's investment profile, a pertinent question since in the distant past Barclays had problems with its investments in South Africa: "Yes, and I was brought up in Cape Town so I remember that situation. But there doesn't have to be a conflict of interest. It's all about asking 'What's the right thing to do?' so clients are emotionally comfortable with their portfolio."

A bit of a renaissance man, Dr Davies also sings in choirs and co-produced an opera, Open Outcry, in 2012 based on the operations of a trading floor that he replicated via computer model.

But, of course, I'm now off to find some money, and a good investment banker.

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