Monday, October 11, 2010

Investing Biases Can Tarnish Your Portfolio

By Arianna Capital

Biases are no new thing - we have handled them over centuries in religion, relationships, business, and much more. It then comes as no surprise to you that they also exist in investing and can severely harm portfolios. It is not just unskilled investors that have them either - it is even professional financial planners and investment managers. So, learn about them so you can make sure your adviser is positioning you in a way that actually serves to accomplish your goals and bring peace of mind to your life.

It may surprise you to learn, however, that financial losses are processed by the same areas of the brain that respond to mortal danger. As such, it is even more important to have discipline in your plan. Wealth managers and advisers can help add discipline as long as they are not subject to the same reactions.

So, what's the solution. First, become aware of these biases, and make sure your adivser is as well. Second, make sure you have a pre-written plan that identifies your investment time line, your goals, and what is being done to get you there. Third, don't time markets or pick stocks. The third one may seem counter intuitive, but I assure you the loads of empirical research and data prove this active style wrong.

This video can help you become more aware of emotional biases in investing - enjoy!

No comments:

Post a Comment