top of page
_edited.png){kind=small}
A fresh perspective is invaluable. You’ll understand why following your plan trumps reacting to the news topics of the day. You'll dismiss the financial media and unfounded financial predictions.
BEHAVIOURAL FINANCE
Your best intentions, always with intent.
The psychology of financial decision-making laid bare reveals that most people have awareness that emotions affect their investment decisions.
Behavioural finance extends this analysis to study the role of biases (how we process information to reach decisions, as well as our preferences) when it comes to complex investment decisions.
Biases have particular implications in relation to money and investing.
Sitting deep within our psyche, our biases may serve us well in certain circumstances. However, in investments they may lead us to unhelpful or even hurtful decisions. But if we understand these biases and their effects, we may be able to reduce their influence and learn to work around them.
The most common of these biases are:
Over Confidence
Often linked to a control or self-attribution biases, over confidence has direct applications in investment, which can be complex and involve forecasts of the future.
This can be a direct result of believing that, as an investor you have more influence or control over investment performance, or when your decisions led to a positive outcome once or twice, the belief that you have skill or ability.
This can lead to investors overestimating their ability to identify winning investments.
Loss Aversion
Behavioural finance suggests investors are more sensitive to loss than to risk and return.
Some estimates suggest people weigh losses more than twice as heavily as potential gains.
This can lead investors into holding onto their "losers", while waiting to break even while selling off "winners" too early.
Regret Aversion
Based on the fact that people fail to get around to taking action, even on things they want or have agreed to do.
This is driven by the human desire to avoid regret.
A strong financial plan and balanced portfolio will only take you so far.
bottom of page