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January 25, 2022

Why it's so tough to be a decent investor

How investors go about making decisions when the going gets rough can have long-lasting implications, especially with bias and emotion working overtime.

The field of behavioural finance has shown that most of us can’t be counted on to take the most logical, rational route when it comes to money.

We’re overconfident and short-sighted. We tend to overreact to information, sell too soon and hold on to losers too long. The list goes on and on.

Don't have time to really read up on the topic? Here's a good summary from Robert W. Baird & Co.’s Private Wealth Management that outlines a collection of psychological and social factors that affect how we make financial decisions.

Visual learner? Have a look at these very simple sketches, courtesy of Behaviour Gap. No one does this sort of snapshot better than Carl Richards, a Utah planner who's famous for his Sharpie drawings (like the one above).

They illustrate what he’s coined as "the behaviour gap" — the chasm between what we should do with our money and what we actually do, thanks to our emotions.

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...