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The analytical aspect of making investment decisions is often overthrown by our emotions. It’s simply human nature, and it shows up most commonly in the form of bias.READ THE ARTICLE
Check your choices: Both emotional and behavioral biases are two of the biggest variables that determine your investor behavior, and can ultimately lead you to make poor choices. They can be difficult to control, but by recognizing what triggers your emotional reaction and understanding what types of investment biases exist, you can better prepare yourself for ways to prevent them from overthrowing your retirement plan. The most common biases include:
📌Loss aversion: This includes making poorly thought decisions in order to avoid loss, or always holding onto the belief that what goes down, must always go up
📌Herding: It’s science; people feel more at ease when they follow the crowd, but doing so completely disregards your unique financial circumstances
📌Media response: Countless news headlines are specifically designed as clickbait and to spark fear, which can cause you to lose sight of reality and the long-term scope of your financial landscape
📌Overconfidence: Attempting to time the market is synonymous to finding a needle in a haystack, but often, investors who are overconfident believe they’re wise enough to do so, and tend to ignore objective investment advice
📌Status quo bias: If you are naturally reluctant to make change, be wary of falling into this financial bias, as it can cause you to keep your portfolio on the straight and narrow for years into the future, when in reality, you should be making changes and evolving your strategy along the way
Moral of the story: Your self-awareness may be the most valuable tool you possess in achieving “Job Optional” status. Take it from the author, my good friend, Joel Johnson – This guy knows his stuff!