Cyclical and rational investments will always be a need in your life. However, It has been analysed by several financial researchers that many psychological & cognitive factors can influence your strategy regarding financial online investing. These are some preconceived notions or judgments which can often lead to some missteps which could directly affect your financial planning and money.
These psychological biases are also known as “Behavioural Bias in Finance”.
6 Common Psychological Biases that can Affect your Investment Strategy
1️⃣ Over-reliance
It can be natural for you to think that a company doing good business in the market must have a good stock return as well. However, this might not be true, and a company doing good business at a given point in time might face a major downfall in future, drowning your investments. Thus, do not rely on just one company for investing and keep a diverse portfolio.
2️⃣ Fear of Loss
Fear of loss or sinking of money can abstain you from taking a chance even to invest your money. This psychological bias affects your financial decisions the most. Lately, most investors have chosen online investing. However, some of them lack faith in the online trading app and thus choose to invest less or not invest at all.
3️⃣ Comparison & Relativity
You may see many of your acquaintances investing their money in different schemes and making huge profits. It can influence your mind that in whichever scheme or stock they have invested, it will help you gain profits. It can make you invest in those schemes without proper research and study. Such haphazard investments shall be avoided.
4️⃣ Recency
If you are into investments, you must be acquainted with some of your policies, schemes, or stocks which recently gave you huge profits or have performed well. Such recent profits or value hikes would influence your mind to invest in the same scheme or stock again in the avarice of more profits. However, this might not always work for you. Only a thorough study and research should be the reason beyond such confidence.
5️⃣ No Experiments
It is always safe to stick with what you already know. However, financial markets are highly volatile, and sometimes it gives you more profits than you estimated. Often investors tend to stick to the schemes which they find safe and low on losses. However, a monotonous financial strategy would never let you go out of your investment comfort zone.
6️⃣ Not Starting Over
Finances can be difficult and sometimes loss-making as well. However, if you refuse to bounce back after a financial loss, you may never be able to make up for that loss. Investors get psychologically haunted by the losses, and they tend to stop investing. It is better to gather more knowledge about the financial opportunities and reconstruct your financial strategy than to give in completely.
To Wrap Up
Psychological Biases in investment can be dangerous to your financial health. Thus, use your mind wisely, accumulate more information about suitable financial schemes and invest responsibly. It is always better to analyse your decisions rationally rather than your cognitive influences deciding it for you.
Here are some more insightful trading, investing and personal finance that will give you walk you through the basics of stock market and help building of strategies in online trading & much more.
You can also read – How to Navigate your Portfolio During War like Situation?
Happy Investing 😇
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
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