Many different types of bias can play a role in the decisions an investor makes and most of the time it results in a negative outcome. Let’s highlight six of the biases that we see clients use for their financial decisions and explain how they affect your portfolio.
A lot of different factors will play a role in the investment decisions you make over the course of your lifetime, but how often are you letting biases take over?
The answer for most of us is that we often fall back on a personal bias of some sort to guide financial decisions. It’s not surprising considering how strongly we feel about our money and assets, but this investor bias can lead to our portfolio taking a hit or missing out on an opportunity that could lead to a lot of growth.
We wanted to explore some of the most common biases we see and hear from the clients around Baltimore that we work with. There are six specific ones we’ll address on this episode of the Her Wealth Matters podcast and J’Neanne will share examples of how they impacted people’s retirement.
This topic is also important because we’ve been enjoying a bull market for a decade and a correction will have people falling back on personal bias. Don’t let that play a part in your retirement plan. Hopefully this episode helps you avoid that, but always remember that meeting with an advisor can be the best way to overcome bias and rely on math and facts.
Listen to the full episode or click on the timestamps below to hear a specific segment.
[1:03] – A recent study looked at the ways financial bias impacted investors decisions.
[1:37] – Confirmation bias is one we see a lot.
[3:13] – Loss-aversion bias is a really big one because we feel the negative
[5:28] – We feel losses much more than the gains.
[6:36] – Disposition Effect Bias, what does this mean to investing?
[7:35] – J’Neanne shares an example of how this impacted a client.
[9:12] – Hindsight bias makes you feel like you an event was predictable.
[10:13] – Familiarity bias led a lot of people to be hit hard in 2008.
[11:55] – Let’s explain self-attribution bias.
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