As wealth goes, so does the desire to have more self-discipline controlling it, according to a new Barclays' survey.
Despite their wealth, 41 percent of high-net worth individuals say they wish they had even more self-control over their financial behavior, according to the latest report in Barclays' Wealth Insights series released Tuesday.
The need for increased financial discipline is likely to be felt most by those at the wealthiest end of the scale, at $15 million or more in investable assets, where 45 percent of the survey respondents indicated they wished they had more self-control.
The report also indicates that those who desire greater financial discipline are also less likely to be satisfied with their financial situation. "Risk and Rules: The Role of Control in Financial Decision Making" is based on a global survey of more than 2,000 high-net worth-individuals in 20 countries, and examines wealthy investors from a behavioral finance perspective.
The report considers the different financial personality traits amongst wealthy investors, and the different self-imposed rules and strategies that they put in place to deal with these traits.
All respondents had over $1.5 million in investable assets and 200 had more than $15 million.
"Many people will be surprised to see that wealthy individuals have a desire for greater financial discipline, however with increased wealth comes an increased complexity of investment decisions," said Greg Davies, head of Behavioral and Quantitative Finance at Barclays Wealth. Davies says t high-net-worth individuals can attain more self-discipline over controlling their wealth, if they're willing to take an active role in doing so.
"Can you obtain control in more objective terms? I say the answer is certainly yes," Davies said. "There are things that we can do that will always help us to achieve more self-control, which is not to say it's easy. It can be done, but it's not something that you just decide 'I'm going to be in control now,' and then it's that easy."
According to the high-net-worth individuals queried, the most effective strategy for increasing investment self control begins with coming up with a set of hard and fast investment rules, and sticking to them. Such investment rules provide increased financial satisfaction, and are associated with higher wealth levels for those who report an increased desire for financial discipline.
"What's really effective, is not just putting rules into place once, but using them repeatedly over a long period of time," Davies said. "That helps you develop a set of habits. And we know that habits are much more powerful than rules. We can always find our way around a set of rules."
According to Barclays' survey, investors use many types of decision-making strategies to control their investment impulses, and use rules more for their financial decision making than they do in their everyday life.
Two of the most popular rules for exercising tighter financial decision making control include adopting an investing "cooling-off" periods, cited by 92 percent of respondents; and setting investment deadlines, cited by 90 percent, according to the report.
Sticking to those investment rules appears to pay off. Comparing the group with the highest strategy usage to the lowest strategy usage, there's a 13 percent boost in financial satisfaction and a 12 percent difference in wealth.
The report also indicates that wealthy U.S. investors rank 5th in investment satisfaction among investors from 20 countries surveyed. Despite this satisfaction, 29 percent still say they wish they could take a more disciplined approach to their financial decisions.
Regionally among U.S. investors, those in the Midwest and West demonstrate the highest levels of satisfaction with their financial situation at 84 percent and 77 percent, respectively, while Northeast investors registered the lowest level of satisfaction at 75 percent.
Barclays' survey also reports that female investors desire financial discipline more than men. About 45 percent of women reported a greater desire for discipline in their financial management compared to 39 percent for men. Women are also slightly more likely to use financial strategies, registering 53 percent compared to 51 percent of men.
Women also admitted to being more likely to get stressed easily, which Barclay researchers say may partially account for women's greater desire for financial discipline.
However, it's men, not women, who may actually have a greater need for investing discipline because men's confidence can lead to lower returns, according to the survey. Men, for example, are more likely to attempt to strategically time the market instead of simply buying and holding, with 41 percent favoring that strategy compared to 36 percent of women. Seventeen percent of male investors are also more likely to trade more than they should, compared to 11 percent of women.
Women are slightly more likely to use financial strategies (53 percent) compared to men (51 percent). Sixty-two percent of women perceive such strategies as more effective compared to 55 percent of men.
Barclays says these gender differences may be explained by the tendency for women to be less willing to take financial risks-32 percent of women compared to 49 percent of men. Also, 42 percent of women indicate they have low composure compared to 54 percent of men.
The report also examines "emotional trading," where investors are tempted to buy high and sell low, leading to what Barclays labels the "trading paradox."
Worldwide, one third of those polled believe that a high return in investing requires frequent trading. Paradoxically, those same "trade frequently" investors are also more likely to say that they trade too much, according to the survey. Almost half of the respondents who believe you must trade often to do well also believe that emotions force them to do this.
Falling victim to a trading paradox can potentially lead to investors becoming unable to control how often they trade, the report says, and even possibly become addicted to trading.
Such "emotional trading" is a global problem, reports Barclays, tempting investors to buy high and sell low, costing them nearly 20 percent in lost returns over the course of a decade. Barclays' report also indicates that disciplined investors are more likely to avoid the pitfalls of emotional trading.
High-net-worth U.S. investors, according to Barclays, seem to have eluded the pitfall of emotional trading by taking a more rational approach to investing. U.S. investors are more likely to adopt a buy-and-hold strategy, recognizing that frequent trading doesn't necessarily equate to higher returns, according to the survey. Only 15 percent of U.S. respondents believe frequent trading is required for good investment returns; only 8 percent of wealthy U.S. investors surveyed felt that they trade investments more than they should.