One of the reasons why people find investing harder than they should is that human beings are hard-wired to focus on the here and now. We’re much more concerned about immediate threats than longer-term dangers such as failing to save enough money for retirement.

In this video, Professor Arman Eshraghi, an expert in behavioural finance at Cardiff Business School, explains how to develop a more disciplined approach to investing for the future.

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Video transcript:

Human beings are hard-wired to focus on the present.

We’re finely attuned to the immediate threats around us. What we’re not quite so good at is dealing with long-term dangers, like not saving enough money for retirement. Professor Arman Eshraghi is an expert in behavioural finance.

He says: “When it comes to events that happen in the long-term, whether it’s going into retirement, etc. we don’t plan for them sufficiently because we don’t see them as sufficiently close.”

Thankfully, help is at hand in the form of financial technology, sometimes called fintech for short. The technology enables us to automate our retirement saving, so we put aside a set amount each and every month without even thinking about it.

Arman Eshraghi says: “Fintech applications basically can allow you to automate your decision to invest in the markets without much thinking, so you really make a decision once, you make a commitment once, and then effectively, the process of investment gets automated — let’s say, every 20th of the month.”

Starting to save early for retirement is very important. But we should also increase the amount we put away each month as our income goes up.

Committing to increasing our pension contributions as time goes by is another very valuable discipline.

Arman Eshraghi says: “Research by some economists in the US shows that there are techniques like “save more tomorrow”, so this is Richard Thaler, for example, who has talked about “saving more tomorrow”, which effectively means that you make the decision to invest a base level and then, effectively, you add to it a little bit every month. And without noticing the pain, let’s say. And then over time, this grows into a significant amount of investment which would then hopefully be a source of income for the long-term and for retirement.”

So, don’t give yourself an excuse to spend money that you should be saving for retirement. If you haven’t done it yet, automate your investing now.

It’s easy to do, and in the years ahead, you’ll be very glad you did it.

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There is plenty of evidence to show that mindfulness has a range of health benefits. But can it also help us to become better investors?

Someone who thinks so is the financial writer George Kinder, who has practised mindfulness for more than 50 years. In this video, he explains to Robin Powell how focussing on the present moment and being in touch with our feelings can help investors make more rational decisions.

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Video transcript:

The last few years have seen a big increase in the popularity of mindfulness.

Mindfulness is a state of mind created by focusing on the present moment, while calmly acknowledging and accepting our feelings, thoughts, and bodily sensations.

George Kinder is a financial writer, and trains financial advisers. He has practised mindfulness for more than 50 years.

He says: “So it’s a training in paying attention. And you’re paying attention in here. You’re paying attention, in a way, to who you are. You’re paying attention to these moments where you feel wonderful, these moments where you feel frustrated, these moments where you feel fearful or anxious or guilty or shameful, which we all have as human beings.

“The primary practice that is taught in mindfulness is to really focus on the present moment, which as you know is impossible to do because it keeps disappearing on you. But what that does is that it makes you much quicker in the moment, much clearer in the moment, much more capable at a moment’s notice to focus and be present, so you’re really much more alert.”

One of the mistakes investors commonly make is they allow their emotions to get the better of them.

By making you more aware of your emotions, mindfulness can help you control them.

George Kinder says: “The most common pattern in investing is not to buy low and sell high, which is the smartest thing to do. The most common pattern in investing is that we all buy high, when everybody’s enthusiastic about something, and then we sell low when everybody’s pessimistic about something. So what happens, that’s driven by greed and fear. What mindfulness does is it creates more patience, more equanimity, more quietness, less reactivity. So you’re more able to be here, be present.

“My main recommendation would be to, if you aren’t doing mindfulness, get a practice going. And if you are, I would double your practice time. And I think the third thing is find an advisor who’s trustworthy, because they will help settle you down. They have listening skills inside of them and they’ll help settle you down so you don’t make foolish mistakes.”

Mindfulness isn’t for everyone. And although it looks easy, it actually isn’t. It requires plenty of practice.

But if you invest the time required to learn it, George Kinder says you won’t regret it.

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There’s been a big increase in interest in sustainable investing in recent years. But what exactly do we mean by sustainable investing? And, if we invest with our conscience, can we expect to receive lower returns?

Robin Powell explores these issues in this short video, with the help of Dan Lefkovitz from Morningstar.

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Video transcript:

An important development in the financial industry in recent years has been the growth of sustainable investing. But what exactly does it mean? Here’s Dan Lefkovitz from Morningstar:

“We define sustainable investing rather broadly. We consider it to be a long-term investment approach that incorporates environmental, social and governance criteria - ESG. And, it can range from sort of old-fashioned, exclusionary screening, like you might’ve seen in an ethical or socially responsible fund. Avoiding stocks of alcohol, tobacco or gambling companies, perhaps coal. It can also be just integrating ESG factors into the overall investment analysis. And that sort of integration is actually the most popular form of sustainable investing today.”

Passively managed funds are very cost-effective, but, by definition, they generally invest in the whole market. So, is there a conflict between passive investing and sustainability? Dan Lefkovitz says, on the contrary, they complement each other well.

“It’s interesting, you might think that, but in fact, we’ve recently seen quite the opposite. So, we’ve seen big passive investment managers, the likes of BlackRock, Vanguard, and StateStreet become a lot more active with the companies that they own, simply because they are replicating an index. Now you are seeing passive investment managers who have to own these companies and feel like they’re sort of suck in a long-term relationship with no option for divorce, be more active when it comes to their ownership.”

If you want to combine passive investing with sustainable investing, there are funds available — particularly exchange-traded funds — that effectively do both.

Lefkovitz says: “We actually think that sustainable investing lends itself very well to index funds and to exchange-traded funds. The kinds of positive and negative screens that are typically employed with sustainable investing actually fit very well in index and exchange-traded fund format. There also seems to be an alignment between the demographic that sustainability appeals to and the exchange-traded fund. Younger investors like sustainability and they also like exchange-traded funds.”

Of course, all investors are ultimately looking for good returns. So, is there is a price to pay for investing with your conscience?

“The number one frequently asked question we get about sustainable investing is: “Do you sacrifice returns if you are investing sustainably?”. And, interestingly, maybe in theory if you’re limiting your universe and not investing in certain companies because they’re not sustainable, that would be limiting. In practice, our data show, that sustainable funds perform on par with their non-sustainable counterparts. There is even some evidence to show, that sustainable investing leads you to companies that are poised for outperformance.”

That’s it. Thank you to Dan Lefkovitz from Morningstar.

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