Avoiding biases in investing can be challenging for even the most seasoned investors. Download and share our free guide and start reining in any cognitive biases you may have.
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 savvy and experienced intelligent investors who have a good understanding of investing principles may begin to make rash decisions during periods of market volatility. Along with a variety of cost benefits of working with a professional financial advisor, one of their objectives is helping 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.
There are many layers that 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. With a short assessment, you can get your risk number to see if your portfolio matches your risk tolerance.
Our guide covers strategies for avoiding investment bias including these top six: