6 Behavioral Biases that Can Negatively Impact Your Long-Term Investments, Ep #165

Financial discipline is imperative to the success of your long-term investments. But your behavioral biases can get in the way of that long-term success. Biases allow you to be short-sighted and you forget about the big-picture consequences of your actions. What are some of those biases? How do you avoid them and make sound investment decisions? I talk about 6 behavioral biases in this episode of Best in Wealth. Don’t miss it![bctt tweet="6 behavioral biases can negatively impact your long-term investments. What are they? Find out in this episode of the Best in Wealth podcast! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement #Behavior" username=""]Outline of This Episode[1:07] Leave Best in Wealth a review![2:13] Personal + financial discipline[4:28] The definition of discipline[7:13] Behavior #1: Herding Behavior[9:30] Behavior #2: Overconfidence[11:48] Behavior #3: Myopic Loss Aversion[13:29] Behavior #4: Recency Bias[16:05] Behavior #5: Home Market Bias[17:58] Behavior #6: Disposition Effect[19:58] What’s your punishment?The Definition of DisciplineAccording to a quick internet search, discipline is “The practice of training people to obey rules or a code of behavior using punishment to correct disobedience.”Investors often think that they’re disciplined, right? But the truth is that most of us aren't good investors. That’s why you must practice discipline. But we all deal with behavioral biases that impact our investing experience. 6 behaviors that can affect your investment returns. What are they?Behavioral Bias #1: Herding BehaviorOne word: Bitcoin. We are hard-wired to look to others for the right way to behave. The problem is that this leads to a lack of independent thought and evaluation. You see Bitcoin continue to climb because of supply and demand. We feel like we need to follow the herd and buy into Bitcoin now. But it means you’re chasing the returns. If you buy in at $50,000 and the market corrects, you may be down thousands of dollars. If you look at stocks as a whole in the last 6 months, there are so many better places you could’ve been than technology stocks.[bctt tweet="Humans are hard-wired to look to others for the right way to behave. How does this impact your #investment decisions? Find out in this episode of the Best in Wealth podcast! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement " username=""]Behavioral Bias #2: OverconfidenceOverconfidence bias leads investors to overestimate their knowledge and ability—while underestimating risk. We think we are smart. But it’s nearly impossible to outsmart the market. Only about 25% of actively managed funds beat their index. The efficient market hypothesis states that stock prices reflect all market information. Remember one thing: everything that we know about a company or sector is already priced into the market. If you aren’t diversified, you are pinning yourself against millions of investors. Overconfidence can kill your portfolio.Behavioral Bias #3: Myopic Loss AversionLoss aversion means that investors are more sensitive to losses than gains. This occurs more frequently when investors check their performance every single day. Oversensitivity creeps in when you do that. This causes investors to behave irrationally and sell after a market drop which means taking a loss. When you feel good about a market gain and then see a loss—it hurts twice as bad. It makes us irrational about our money and we lose subjectivity.Behavioral Bias #4: Recency BiasPeople—including me—have...