Understanding Behavioural Finance could make you savvier when it comes to growing your SIPP.
Being Mindful Of Behavioural Finance Could Prevent You From Losing Money
It Could Pay You To Learn About Behavioural Finance
The study of Behavioural Finance has only been formally recognised over the past 40 years or so.
It’s the notion that having a deeper understanding of how the mind works and how emotional biases can affect financial decisions could help you to avoid costly investment mistakes.
Recognising And Avoiding Behavioural Finance Biases
It seems many investors squander their hard-earned money because they act on sentiment, not sense, when it comes to investing. Research shows people often make basic errors when it comes to investing which could have been avoided if they had stripped the emotion out of their decisions.
According to many of the world’s most respected investors and academics, the majority of this heartache is caused by the human brain and the fact it’s not wired correctly to deal with stockmarkets.
Over the past few decades, many experts in the field of Behavioural Finance argue the complex and highly emotional process of staking our financial future on a portfolio of companies triggers the reflexive system of the human brain. It prompts investors to take irrational decisions, including panic buying and selling shares, overtrading, refusing to budge on pre-conceived ideas and blindly following whatever we’re told to believe.
Behavioural Finance hasn’t been lost on the big name investors of past and present generations. The likes of Warren Buffett, founder of Berkshire Hathaway, are known for devising various unconventional strategies in a bid to become detached from the emotional rollercoaster of equity investing.
But while keeping one’s emotions in check sounds like a fairly simple task, countless stories of people continually getting burnt by giving into them indicates few in the game have been sufficiently able to master what the experts frequently refer to as the eight basic rules of investing.
Basic Rules Of Investing
Rule 1: Don’t Fall In Love
Rule 2: Don’t Buy Flavour Of The Month
Rule 3: Don’t Be Dogmatic
Rule 4: Learn From Your Mistakes
Rule 5: Avoid The Crowd
Rule 6: Don’t Think You Can’t Lose
Rule 7: Don’t Obsess Daily
Rule 8: Nothing Is A ‘Dead Cert’
Increase Your Investment Success By Understanding Behavioural Finance
To discover more about Behavioural Finance, and how the eight basic investment rules work in relation to it, read an excellent article and watch a short video featured on FTAdviser. Click the blue button below.Behavioural Finance
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