We’ve partnered with OneVue to share episodes from their Secrets of Money Masters series. In each story we see how financial planners have worked with their clients to navigate difficult circumstances and identify and mitigate behavioural biases in their financial choices.

Today, more than 70% of Australian wealth is invested in Australian assets – property, Aussie equities and term deposits. This model has served us well, but with house prices uncertain and interest rates at all-time lows, people are beginning to question this traditional path to financial security. There are also a growing number of retirees grappling with the transition from accumulation to income generation, in the knowledge that many will outlive their money by 11 years.

These are just some of the factors leading clients to consider investments outside of their current experience and preferences. But most don’t know where to start and lack confidence about switching to different assets.

So, the burning question is: with the traditional path to wealth challenged, where should clients look to now for their investment portfolios?

Kate and Greg’s story

Kate and Greg are 45 and 49 years old respectively. They have three primary school aged children. For the past three years they have lived in the Blue Mountains. Originally from Kew in Melbourne, they are currently in the process of relocating back there to live in their family home that they have been renting out as an investment property.

Greg travels a lot for work, and Kate is the primary carer for the children. Before kids, Kate worked at the family law court and plans to go back to work when they move back to Melbourne, bringing more cashflow into the household. Greg earns a good salary working in a corporate job.

They are both keen and interested in money and investing. Not only have they done up three houses and sold at a good profit, they also have a good portfolio of direct Australian shares. While they believe property is a winner and are willing to get their hands dirty (Kate runs renovations herself, of bathrooms, kitchens, etc. and is very skilled), they don’t think it’s the only  answer. Greg is very keen to diversify their investments to set them up for the future. Outside of property and direct shares, Greg is passionate about investing in unique things like whiskey, champagne and art.

They are both keen to see themselves set up by sixty and be travelling the world and enjoying themselves once the kids have grown up. Kate is also knowledgeable about money, and enjoys day trading her shares. Both are keen to learn more about other investments that they may not know about. They have a goal to hit $5 million in assets by retirement including the value of their Melbourne home.

Kate’s super balance is quite low, while Greg has a considerable balance. Both believe the way to a good retirement sum is to have their eggs in a number of baskets. They are open to this experience to receive feedback from experts on what they could possibly do to ensure their retirement dreams and give their three kids a helping hand.

Kate and Greg: Behavioural Science Observations

Professor Sharyn Rundle-Thiele from Griffith University is a behavioural scientist. She offers insights into the behaviours, preferences and biases she observes in Kate and Greg and comments on how these may impact their investment choices.

“Kate and Greg appear to have a number of unconscious behavioural biases that are blocking them from seeing the full picture when it comes to their investments. Key to opening their eyes will be showing them the hard numbers comparing their current plan to a better diversified one. Crucial to them taking action will be helping Greg, the opportunist, understand and rationalise the investment ‘story’ behind diversifying.“

Kate and Greg’s observed biases

• Availability/non-availability bias: anything that isn’t ‘in sight’ when it comes to investing are not discussed. Whilst they have a clear target of $5M for retirement, availability biases can distort or constrain choices which could be considered by the couple
• Representativeness restraint bias – Kate and Greg discuss a restricted set of investment choices which reflect their previous investment pattern. This could result in them potentially ignoring atypical choices as possible alternatives presented by a financial planner
• Search bias – Kate and Greg have demonstrated a tendency to call off further examination/investigation once something is found. After a bad experience renting out their houses,  Kate and Greg made a choice to invest in shares. They may have overlooked outcomes that could have emerged from exploring other investment choices.

The Secrets of Money Masters series partnered with UBS and Deborah Kent CFP® to take a closer look at Kate and Greg’s situation, their ambitions and have an expert panel provide insights and alternative ideas to help Kate and Greg – and other Australians in similar situations – achieve their retirement goals. You can watch the series here and hear more insights from the panel of experts.