3 Worst Investment Mistakes

Humans are complicated, irrational beings, and we’ve learned that our mindset and behaviors can have a massive impact on our financial outcomes, especially when it comes to investing. Our brains are hardwired with psychological biases that can hurt us as investors, especially right now, when we’re experiencing an economic crisis and volatile markets.

Here are 3 of the most common investment mistakes and what you can do about them.

Action Bias:

Humans are primed for action. It makes us feel in control, especially in uncertain times. However, immediate action is sometimes the wrong move, especially when emotional reactions or gut decisions drive it. Fight action bias by taking time to engage the rational part of your brain and getting financial advice before making a move.

Recency Effect:

We tend to remember recent events more clearly, giving them more weight when making decisions than past or future events. While market losses hurt, we can’t let them derail our goals or keep us on the sidelines. If you’re feeling burned by the correction, reach out to our financial advisors in Scottsdale or Prescott so we can help put things into perspective.

Warren Buffett’s Favorite, Confirmation Bias:

We love being right and hate being wrong. So much so that our brain tricks us by being more receptive to information that confirms what we already believe and resistant to conflicting evidence. Counteract this by getting an outside perspective and creating systems to make logical decisions in your investment strategy. Buffett has Charlie Munger to talk ideas with, and you’ve got us.

The truth is, we all have biases, even finance professionals.

But, by learning about how our brains work, we can leverage our behavior and create systems that help us remove bias and make better financial outcomes. That’s why understanding the behavioral side of money and investing is so important.

If you have a question about what I’ve discussed today, or you’d like to speak to our team of financial advisors, please use the form below to send a message. We’re here for you.