3 ways to build better confidence with investing

Ask yourself the question: do you think you are a better driver than the average person? If you are being honest, you are likely to say yes; after all, who wants to believe they are a worse driver than a fictional ‘average’ character whose driving skill is difficult to assess. You would not be alone. In 1981, a study found that 93% of American drivers rated themselves as better than average¹.

This is a statistical impossibility, as by definition, only 50% can be better than (or equal to) the median. What it does is highlight the issue of overconfidence.

Overconfidence

Confidence is generally considered a positive trait to possess; this is especially true in the world of investment management. It has been linked with success in many different areas of life, and this makes sense when it is backed up by ability. Yet, excessive confidence, beyond what is realistically warranted, can lead to bad or even disastrous outcomes.

In investing, this can equate to having a level of conviction about what the future holds that can be damaging when wrong. This isn’t just a theoretical argument; studies have shown that overconfidence is associated with diminished investment returns².

However, being an under-confident investor can be costly as it often means that people don’t invest and lose out on any potential long-term returns from investing. Here, we look at three tips to manage confidence and become a better investor.

1. Better information

If you are struggling for confidence the first and most obvious step is to gain knowledge; more information should lead to more confidence. However, as you go beyond the basics and start thinking about which specific investments will perform well you need to be careful not to get overconfident.

Make sure the information is good quality, it’s often easy to create an exciting story that isn’t necessarily supported by the information. Also, try to make sure the information you get is not one-sided. It’s easy to just find information that confirms a belief we have, so make sure you consider all the angles.

2. Learn from your mistakes

Taking time to analyse your past investments is important to get better confidence although past performance is not a reliable guide to future performance. Great fund managers spend a lot of time refining their investment process by trying to understand what went wrong with investments that lost money. Don’t just look at the ones where you lost money though, look at those where you made money as well. After all, if you randomly choose what to invest in, there’s a 50% chance it will do better than the average investment.

Ask yourself why you really made the investment. If you hear something like: “I only bought that because everybody else was, I only bought that because I read about it everywhere, I only bought that because it had performed so well” then this suggests the confidence in the investment was misplaced.

3. Dip your toes in first

A bit like stepping into a bath. If you don’t know what temperature the water is, dip a toe in, then slowly get in. You can use this with investments. When you’ve made the decision to invest into something, but perhaps still lack some confidence, you don’t have to make the investment all at once. Consider buying a bit, then a bit more, then – when you are totally comfortable – buying the rest. Be aware though that each purchase may come with a cost, so if the amounts are small then this approach may not make sense.

Conclusion

To become a successful investor, you don’t need vast amounts of knowledge to become confident as you can outsource as much of the decision-making as you want. You don’t have to choose which companies to invest in – there are exchange traded funds and fund managers which will do this for you.

If you know roughly how much risk you want to take, you don’t need confidence in how to mix different investments together as there are lots of multi-asset funds that will do this for you, including our own Barclays Ready-made Investments. But if you are confident in selecting your own funds, the Barclays Funds list may help you narrow down your choice.

Find out more information on these funds. Ultimately, you need the confidence that the investments you do choose are ones that will help you meet your goals.

Where to invest

If you’re ready to invest but are short on time or need some inspiration, you might want to consider one of our five Ready-made Investment funds (RMI). You don’t need to be an expert – our team of professionals create and monitor our funds. The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with.

These Barclays multi-asset funds invest in passive funds³ across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Past performance of the fund and its manager are not a reliable indicator of their future performance.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.