Which behavioural biases are impacting your investment decisions?
Chris Broome – Chartered Financial Planner
We here at Longhurst are ardent followers of a form of economics known as behavioural economics.
Behavioural economics is a key focus on the psychology of decision-making and the impact of known behavioural biases.
Behavioural biases can be irrational beliefs (or behaviours) that influence our decision-making process.
Traditional economic theory is based on the rational man. However, and as we all know, in reality humans do not always act with rationality, the opposite in fact.
Behavioural economics acknowledges this difference – understanding a more realistic analysis of how we think and behave when making economic decisions.
Whether it’s reacting to the (temporary) market decline at the beginning of the COVID lockdown.
Or about the decision you’ve made to self-invest your 7-figure pension fund through 3 decades of retirement – even though you’ve never invested such sums before.
Or the desire to follow the same financial decision journey as a number of your colleagues, all of whom are doing exactly the same thing.
The truth is that our decisions can easily be affected by behavioural biases. As such it’s critically important that investors are made aware of the most common biases encountered and to then think about their own decision making processes.
At Longhurst one of our key roles as the financial stewards of our clients’ hard-earned capital is to ensure that they don’t make the wrong decision, at the wrong time, for the wrong reasons.
We do this by being experts in identifying biases that may potentially exist, and raising a red warning flag before they take the wrong step.
To help you with your understanding we’ve put together the following info-graphic. We hope you find it of value.
If you have any questions about this or any other matter please contact us at hello@longhurst.co.uk.
