Have you ever made an irrational or impulsive purchase you’ve later regretted? We all make decisions based on our emotions or personal biases, but when it comes to investing, such mistakes can be very costly.
What is behavioural investment?
Behavioural investment is an approach that acknowledges how our emotions and our biases can sometimes make decisions for us. During periods of geopolitical uncertainty and heightened risk, behavioural investment biases can become even more pronounced, tempting you into making poor decisions. Here are some impulses that often lead to bad investment decisions:
- Loss aversion: Investors worry about their investments falling further in value, so they sell them prematurely, locking in losses and missing out on potential rebounds
- Herd mentality: When markets fall, people tend to panic, follow the crowd and sell their investments. This ‘herd mentality’ means markets keep falling, as more people panic and sell, creating a spiral
- Confirmation bias: Investors let their own opinions dictate their actions and often seek out information that confirms their existing fears, ignoring evidence that contradicts their own impulses
- Overconfidence: Some investors believe they can predict the market’s reaction to geopolitical events, leading them to make risky bets that could ultimately backfire.
Avoiding behavioural biases
Investors often need to worry less about geopolitical events and more about avoiding making poor decisions. Worry not, you’re in safe hands. We can create a plan and stick to it, so we focus on longer-term goals, rather than risk getting distracted by short-term noise. We will build a resilient portfolio, spreading your investments across different asset classes to manage risk. Rest assured, we will make well-considered, researched investment decisions to increase your chances of achieving your long-term financial goals.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
