How to Recognize Behavioral Finance Biases
Over the last few months, we’ve faced a great deal of economic turmoil and uncertainty, which has a great impact on the finances and mindsets of many all across the world. Through these hardships, we’ve seen individuals face and struggle with a great deal of biases in respect to their portfolios and investments. We want to bring light to these behavioral finance biases that are only natural in human behavior and stress the importance of maintaining long term goals.
This past week has been stuffed with an overwhelming amount of news – the drawn out 2020 presidential election, the Pfizer vaccine announcing 90% accuracy and the coronavirus pandemic making a second wave with over 10 million cases. As Americans are grappling with all this news, so is the market.
Prior to the presidential election, we saw people selling out of their 401(k)’s or loading it up depending on which side of the political aisle they stood. Additionally, we spoke with individuals who were waiting to buy back in the market when the coronavirus cases diminished, even though the cases are the highest they’ve been since March and we are seeing the strongest market in a long time. Those who said “we won’t invest until the news settles down” back in April are still waiting as we still see a great abundance of news and a raving market. These biases prove the importance of sticking with a long-term goal and not being persuaded by beliefs and expectations.
As we proceed into what seems like could be another coronavirus pandemic lockdown alongside a strong market, it’s interesting to look back at the data and hindsight biases and see how individuals may alter their investment approach a second time around. These last nine months have been a wild ride and crazy for the market to digest. However, the market has proven many wrong these last few months, showing the power of its resilience and strength. If you have any questions specific to your portfolio and investment decisions, please reach out to us at info@shermanwealth.com and schedule a free 30-minute consultation here.