We like to think we invest rationally, but the field of behavioral finance has shown there are social, emotional, and even cognitive factors that can affect our investing decisions.
Studies have shown that we’re wired to feel twice as bad about a loss as we feel good about a gain, this is called Loss Aversion.
Volatile markets can tempt an investor to forego future opportunities rather than face the possibility of a loss. And that may cause long term goals to fall by the wayside. By becoming aware of these unconscious tendencies, we have a better chance of meeting our long-term investing goals.
Is Loss Aversion Really just about Dodging Water Hazards?
Watch this short and fun behavioral finance videos to understand it better