Avoiding biases in investing can be challenging for even the most seasoned investors. Our free guide can help you avoid derailing your portfolio.
When the market is relatively stable, the brain generally resides in a relaxed state. When the market is volatile, the brain elevates to a scared or even angry state. These elevated states make it difficult for investors to keep from inflating possible risks and dangers through a variety of cognitive biases.
Even experienced intelligent investors who have a good understanding of investing principles may begin to make rash decisions during periods of market volatility. One of the many cost benefits you get when working with a professional financial advisor is that they can help you manage these innate tendencies and behaviors.
According to a landmark study on prospect theory and risk aversion, people are more likely to be concerned about avoiding loss than they are about the possibility of gains. When it comes to successful investing, we can see how that stance might be counterintuitive.
Several layers help define the psychology behind risk-taking, risk aversion, and investment behavior. These layers can include perceptions, intuition, personality, and emotions. Any combination of these characteristics can influence our level of risk-taking in some way.
Our guide covers the top six strategies for avoiding investment bias including: