Financial experts are warning that the biggest danger to personal financial success is not a bad economy, a market crash, or even a poor investment decision. Instead, the biggest threat is often the individual investor and the emotional decisions they make.
Research in behavioural finance over several decades has shown that the human brain is naturally wired to react emotionally to money issues, often making wrong choices that damage long-term plans. Experts call this hidden cost the “behavioural tax,” and they say it affects almost every investor, regardless of experience or income level.
According to analysts, successful financial planning starts with managing the psychology behind money, not just focusing on assets, savings, or investment portfolios. This is where financial advisers play an important role—not only as investment managers but as behavioural coaches who give structure, discipline and guidance, especially in difficult times.
Many investors lose money because of emotional reactions, especially when markets become unstable. For example, during sudden market drops, people tend to panic and make quick decisions such as selling off investments too early. Behavioural experts say this reaction is normal because human beings are designed to avoid pain, including the emotional pain of financial loss.
Studies show that the feeling of losing money is almost twice as strong as the pleasure of making money. This strong “loss aversion” pushes people to sell during a downturn just to escape the fear of losing more. In most cases, this leads to selling at the worst possible time, going against long-term investment strategies.
Another common behavioural mistake is anchoring, where investors hold on tightly to the first piece of information they received. For example, an investor may cling to the price at which they bought a stock and refuse to sell at a loss, even when the market signals that exiting would be a smarter move. Anchoring also affects buying decisions, especially when prices fall and investors wait endlessly for the market to return to an unrealistic “high point.”
Humans are also naturally influenced by the crowd. During times of uncertainty, many investors copy what others are doing, a behaviour known as herd mentality. This often leads to buying at the top of the market because “everyone is buying,” or selling at the bottom because “everyone is selling.” Experts say this is one of the fastest ways to pay the behavioural tax.
To address these deep-rooted issues, Momentum Advice says it now focuses on personalised financial planning that begins with understanding a client’s psychological relationship with money. The firm uses a specialised assessment tool known as the Money Fingerprint before traditional financial planning even begins.
The Money Fingerprint goes beyond the standard industry risk profiling, which normally checks how much investment risk a client says they can handle. Instead, it examines stable personality traits that shape financial behaviour. These include:
- Prudence: how well a client plans for the future
- Anxiety: how likely they are to panic during market volatility
- Prestige: how much they use money to express identity or social status
For example, if a client scores high on anxiety, advisers know that the person may be tempted to rush into cash during a market downturn. With this knowledge, advisers can prepare the client ahead of time through a clear communication strategy, emotional preparation, and even written commitments to stay focused on long-term goals.
Momentum advisers say this approach ensures that every client is treated as an individual. Two people with the same salary and investment portfolio may behave completely differently when the market becomes unstable. Understanding these differences helps advisers offer guidance that matches the client’s personality, not just their numbers.
Experts say the main job of an adviser is to act as an objective guide who can help clients override emotional decisions that often lead to financial losses. By using Money Fingerprint insights, advisers help clients stay disciplined, focused, and calm in both good and bad financial periods.
Momentum says this commitment to understanding human behaviour is part of its Science of Success philosophy, which highlights the value of long-term advice. The firm believes that emotional decision-making is expensive, and the only way to build wealth is to combine financial planning with behavioural awareness.
