For many of us, growing our wealth is essential in helping us realise our aspirations. Investing plays a key role in building your assets, but what really drives the performance of your portfolio? Is it the amount of research you do, how you select your holdings and fund managers or how often you rebalance your portfolio?

These tasks are obviously essential to successful outcomes. However, assuming some basic degree of competence, decisions such as the choice between active fund managers and tracking the same index usually have much less bearing on investment outcomes than simple money behaviours such as choosing to save rather than spend.

The most significant investment decision

The decision to commit to a long-term investment strategy is the most significant investment decision. At times, investors tend to deviate from their original plans because of influence from friends or market sentiment. While priorities and spending habits do change over time, investors should make sure that their investment strategies continues to stay on course. The past two decades have seen a dramatic cultural change from a society where thrift was regarded as a virtue to one where it is viewed as a dull alternative for the dull conservative. While conspicuous consumption used to be regarded as vulgar, for many people it now provokes feelings of envy rather than disdain. Expressions such as 'save for a rainy day' have been replaced by modern interpretations such as 'save for a plasma screen'.

Economists point to some rational reasons for this change. Globally, household wealth has increased enormously, resulting in higher standards of living. The economic cycle has become more stable over the past 50 years. At the same time, advances in technology have resulted in a wide variety of new products being made available to tempt people to spend rather than save. Retail savings banks that had previously been very cautious in providing finance for personal consumption came to the party, extending their credit facilities and encouraging debt as a means of financing consumption.

However, there is evidence that these trends have gone too far. In South Africa, the ratio of household saving to disposable income has steadily been declining over the last few years. The ratio of household debt to disposable income on the other hand has spiralled and currently stands at over 77 percent. Despite this, strategies such as saving, investing and taking out insurance have a bit of an image problem because their benefits are, at best, deferred and are mostly highly intangible until realised. How much regard do you get in saying that you spent your last bonus on topping up your savings? As sensible as this may be, the chances are high that this kind of behaviour will leave you feeling out in the cold.

To the extent that people talk about investment, it’s more likely they will want to boast about having bought something that has or is likely to rapidly increase in value. Arguments about taking a long-term approach and riding through cycles are likely to attract little attention and, at worst, mild contempt. Materialism is becoming an increasingly dominant element in life. As psychologist Richard Reid observes, almost by stealth, we have adopted a world view in which the worth and success of others is judged not by their apparent wisdom, kindness or community contributions, but in terms of whether they possess the right clothes, the right car and, more generally, the 'right stuff'. Feelings of personal worth are in many cases based on how one’s pile of money and possessions compares with that of others; both those who surround us in real life and those seen only in the pseudo-realities of lifestyle television and movies.

Evidence indicates that materialism causes distress rather than happiness

Yet, there is plenty of evidence that materialism actually causes distress rather than contributing to happiness. Those who strongly value the pursuit of wealth and possessions report lower psychological well-being than those who are less concerned with such aims. Researchers such as Tim Kasser, author of The High Price of Materialism, have produced compelling statistical evidence that this is the case. The link between materialism and distress is complex, but ultimately reduces to a simple thought: once you are on the treadmill, you can never have enough and thus are likely never to be satisfied. The antidotes involve complex sociological issues, including people’s needs for safety and security, for connection to others and so on. Psychological literature continues to cover these issues in detail. Understanding the choices you are weighing up — apart from your investment decisions — is an important step towards changing behaviour over time.

Arun Abey is an acsis co-founder and international strategic adviser.