You’re probably sabotaging yourself when it comes to finances. How to spot it — and stop it

Rick Ropelewski |

By: Robert Powell

Yes, we know that you think that you’re a rational investor.

But you’re not.

Whether you know it or not, whether you like it or not, you have some behavioral biases that could materially and adversely affect your investment decisions and ultimately your outcomes.

And there’s a plethora of research to prove it, dating back at least in the modern era, to 1979 when Daniel Kahneman’s and Amos Tversky’s paper, Prospect Theory: A Study of Decision Making Under Risk, was published. Their research uncovered the loss aversion bias.

In the years before and after that landmark paper was published, numerous other biases have been identified. And, at a minimum, you should have a working knowledge of some of the more common biases, how to spot them, and what you can to avoid or mitigate these biases.



The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Asset allocation does not ensure a profit or protect against a loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Robert Powell is not affiliated with US Wealth Management, LLC and LPL Financial.