A Closer Look: The Growth of Behavioral Finance

Behavioral finance, as reviewed in our July newsletter, is “an economic theory that ascribes the irrational behavior of individuals making financial choices based upon psychological factors or biases,” according to Investopedia. 

As the markets become more volatile, it’s important to check our biases at the door.

Key takeaways:

• Avoid recency bias and don’t chase past performance. Whether managed by a computer or by a human, past fund outperformance is not a guarantee of future success.

• Diversification is a sensible strategy; avoid concentration risks.

• Adhere to a well-calculated asset allocation plan. Investors should resist the urge to jump from one “hot” fund to another.

Source: Geeks for Geeks