Behavioral Finance Integration

Studies in Behavioral Finance have shown that bias plays a key role in the financial decision-making process. Biases, simply stated, are psychologically based tendencies, traits or preconceived notions that influence humans to act or think in certain ways. Their influence is often hidden from awareness, yet their impact on behavior and thought, and thus potentially on financial decisions, are quite real.

An example of a common bias is “confirmation bias.” People are often drawn to information or ideas that validate existing beliefs and opinions. For example, many TV viewers prefer a news channel that represents their own political views, avoiding those featuring commentators of different opinions. As a result, you may invest differently depending on your political affiliation, even to the detriment of your long-term portfolio returns. The best way to overcome this bias is to consider information from multiple sources.

Our background in behavioral finance helps us be attentive to the presence of these biases both in ourselves and in our clients. We strive to help clients become aware of their biases through discussion and education with the goal of decreasing the negative impact of bias on your financial plan.

It is our belief that the integration of behavioral finance helps us develop a more complete understanding of who you are and allows us to create financial plans and investment portfolios that are a better fit with your individual goals, wishes, and values.

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