Do You Invest With Your Gut?

1 February 2017
The latest research from Mortgage Choice shows some interesting results when it comes to people’s attitudes towards investment.

How much information do we subconsciously receive daily? Whether it be through the media, friends, colleagues, or even those strangers having a loud conversation on the bus, you may be picking up more information than you think. This information might also be affecting your judgement when it comes to investment decisions, particularly if it’s bad advice.

9 in 10 landlords don’t regret purchasing investment property

According to a recent study done by Mortgage Choice, 94.4% of Australian Landlords were happy with their property purchase. This is unsurprising, according to Mortgage Choice Chief Executive Officer John Flavell.

“Over the years, property has proven itself to be a very lucrative and safe asset class. When you combine an impressive growth rate of 10.9% over major capital cities, it is easy to see why so many Australians perceive property investment as a savvy financial decision,” he said.

But Mr Flavell said financial decisions should not be solely based on hearsay evidence from friends, family or strangers.

“Getting advice from a professional is imperative for anyone who wants to make a better choice,” he said.

For further information regarding comparing current home loan products available, please see our comparison table below which includes links directly to the financial insurers website. This features variable home loans available for property investors, sorted by comparison rate (lowest – highest). Please note that this table features products that are based on a loan amount of $350,000 with a LVR of 80%, for properties in NSW.

Variable Loan

3 Year Fixed Loan

Invest in property or the stock market?

In an example of how immaterial information affects our decision making, Mortgage Choice put two groups of people to the test.

In the first waiting room, there was an actor having a loud conversation over the phone negatively influencing the participants against the property market. In the second waiting room, there was complete silence.

The participants were then given the choice to invest in either the stock market or the property market. An overwhelming number of the people who were negatively influenced by the actor chose to put most of their money into the stock market.

The group that wasn’t influenced were split pretty evenly between the two investment classes.

Source: Mortgage Choice

Behavioural economist Dr Lionel Page said the study demonstrated how Australians can be strongly influenced by what they see and hear.

“People who were influenced reacted in a very different way to those who weren’t,” Dr Page said.

Informed vs gut decisions

This social experiment is not the only experiment Mortgage Choice has done recently.

After findings revealed that 1 in 3 Australians regret a financial decision they made with their gut, Mortgage Choice tested random citizens’ appetite for risk with a balloon experiment.

Dr Page said this experiment set out to demonstrate how going with your gut when making financial decisions can lead to regret.

“We asked all participants to blow up a balloon using a bike pump. Each time they used the pump, they earned themselves $5.

“They were told they could opt out of the experiment at any time and walk away with the money that they have earned. However, if they pushed their luck and the balloon burst, they would ultimately walk away with nothing.”

Source: Mortgage Choice

The experiment showed that different people have different attitudes towards risk, and both low and high risk attitudes can have negative outcomes. Those with low appetites for risk might miss out on bigger rewards, while those with high risk tolerance are in danger of losing everything.

While Dr Page claimed the study was all for a “bit of fun”, it still highlighted the importance of making advised financial decisions.

Mortgage Choice CEO John Flavell said whether you’re buying a home, planning for retirement or investing, all Australians should seek out advice.

“At the end of the day, you don’t want to regret any financial decisions you make. If you want to make better choices for a better life, it pays to speak to a professional,” he said.

Share this article