With something as important as your financial security, investing myths and biases can pose a serious threat to your future wealth. This week’s digest highlights common biases and misconceptions that can lead you to make irrational investing decisions and how you can avoid them.
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The Major Behavioral Biases Influencing Your Investment Decisions |
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By Jason Voss, CFA
You may not believe it, but science has proven that you and I are biased and often make irrational decisions. That we are all biased is interesting … but even more interesting is the question of how do we avoid these biases to become better investors? Recognizing the major biases is the first step in learning how to avoid them in your investing. In the article The Major Behavioral Biases Influencing Your Investment Decisions, author Jason Voss outlines the major biases that often impact investing decisions.
Some of the topics covered in the article include:
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The 10 core biases that merit your attention
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Which of the biases impact investors most often
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Why behavioral biases are not hardwired
Despite best efforts to remain neutral in investing, biases influence decisions without many even realizing. You’ll benefit by keeping these 10 core biases in mind as you tackle investment decisions. Be honest with yourself, as you are the only witness to these errors. Admitting that you are susceptible to behavioral biases is the first step to learning how to avoid them.
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Making Better and More Rational Decisions |
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By Annie Duke
Former professional poker player Annie Duke has used her unique experience to become an expert corporate consultant and author on the behavior of decision-making. In a conversation with AAII Journal editor Charles Rotblut, she discusses the self-serving bias we all have that leads us to attribute good outcomes to our decision process and bad outcomes to external factors. This hurts our ability to improve our decisions going forward, which can be especially harmful for individual investors.
In the interview “Making Better and More Rational Decisions” Duke also explains how our tendency to notice all the things that agree with us prevents us from seeking out differing opinions, which can be valuable for pointing out something about our investing decisions that we haven’t thought about before. She also suggests that thinking about the various ways the future could play out can help you prepare for unfavorable outcomes and avoid irrational decisions.
When investing, recognizing when a future version of ourselves might make an irrational decision can enable us to do things, such as setting a loss limit, to protect ourselves from making those irrational decisions. In this article you’ll find more tips to improve the odds of making rational decisions with your finances and investments.
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Member Question
Do you use economic indicators or other specific metrics to monitor risk levels in the economy?
A) Yes
B) No
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Be sure to vote on this week’s question for the opportunity to offer your insights on our open-ended question. |
Previous Question’s Results
Congress passed the most significant changes to the nation’s retirement system in more than a decade, the SECURE Act. While the insurance industry lobbied hard for the change, the provision has attracted criticism from consumer advocates. Do you support or oppose the proposed changes made in the SECURE Act?
Oppose : 46%
Support : 31%
No opinion : 23%
Poll results are as of 9 a.m. (Central) on Monday. 1,315 respondents.
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AAII.com’s New Look & Added Member Benefits for 2020 |
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The new year brings a new look to the AAII.com home page, plus new features and information for all AAII members. To help you navigate the site to make the most of the new offerings, we’ve put together a short video tour. Take a moment to watch the video, then explore for yourself to find out how to take advantage of these exciting new AAII Member Benefits. More » |
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