The broader significance of wealthy individuals should not be underestimated. As leaders, innovators, facilitators and pioneers, the wealthy often represent the most dynamic sections of society, while as investors they tend to be the most prescient, passionate and incisive individuals you can meet.
The Barclays Wealth Insights reports, developed in partnership with the Economist Intelligence Unit, provide a comprehensive picture of what it means to be wealthy in the 21st century.
Based on global research with over 600 mass affluent, high net worth and ultra-high net worth individuals and the views of a panel of wealth experts, drawn from academia, industry and financial circles, each Insights report paints a picture of the private world of this influential group, by analysing their shifting demographic profile, priorities and preferences.
And by uncovering the complex social and psychological dynamics – including gender, family and social interactions – that define the behaviour and outlook of the wealthy, our reports provide a compelling snapshot of the deeper trends that shape the future of society at large.
In this report we examine the choices that wealthy investors make, especially during periods of volatility, and explore the characteristics that determine why they make those choices. With a wide range of information, advice and options available, accompanied by rapid rates of financial innovation, keeping up with trends in a time of market uncertainty can be a challenge. We underscore the importance of how personality traits and cognitive biases of investors can play a central role in influencing investment-making decisions and the significance of expert advice in helping to close the knowledge gap.
Barclays Wealth in association with the Economist Intelligence Unit, 01 September 2008
Volatility in financial markets is nothing new. From the tulip mania of the 17th century to the dotcom crash at he start of the new millennium, the history of finance is littered with episodes during which markets see-sawed from exuberance to despair and back again.
In this respect, the current credit crisis, which had its origins in US sub-prime loans, is little different. Athough the context and conditions may be dissimilar to previous crises, the response of investors is the same – fear replaces confidence and an inevitable market downturn ensues.
It has long been suspected that the personality traits and cognitive biases of investors play a central role in influencing asset prices and market cycles. In recent years, a growing body of academics and practitioners has started to explore more carefully this intersection between psychology and finance – usually termed behavioural finance – to explain how and why investors make the financial decisions that they do.
Traditional finance holds that individuals behave in a completely rational way and weigh up decisions based on their access to information. In practice, however, the reality can be quite different. For example, investors can over-react or under-react to new information, discount
evidence that does not support their viewpoint, or display overconfidence in their own abilities.
During times of upheaval in financial markets, these responses can become exaggerated as investors seek to protect their capital against swings in asset prices or profit from uncertainty. As a discipline that seeks to understand the complex psychological and emotional make-up of investors, and to explain how they make what are sometimes irrational decisions, behavioural finance has never been more relevant than it is today.
The aim of this study, produced by the Economist Intelligence Unit (EIU) on behalf of Barclays Wealth, is to examine the choices that wealthy individuals make on their individual investment journey and, in particular, how these decisions change in times of volatility. Based on a global survey of more than 2,300 affluent and high-net worth individuals, it examines the responses of investors to volatility in financial markets in terms of how they select, manage and monitor their investment portfolio.
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