Are You an Emotional Investor?
It may seem like a question from left field, but if you were to sit down and really think a bout the types of decisions you make every day about your money, would they
be logically based and unaffected by emotions?
ADMITTING IS THE FIRST STEP
At first you may think to yourself, "No, I am definitely objective about my financial planning. Really, I am." But scientific study reveals an opposing camp of theorists
whose entire careers focus on the study of how and more importantly, why investors behave illogically with regard to their financial future. The study of Behavioral Finance was brought to the forefront by 2002 Nobel Prize winning psychology professor Daniel Kahneman's observations exploring the emotional biases that govern our financial decision making. The research "reveals repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty," says Peter Bernstein in his book Against the Gods. If you agree that sometimes you make financial decisions that are not in your best interest, what can you do as a serious investor? "Seek the advice of an unbiased advisor," says Sam Hull, CFP, former principal at Northstar Financial Planning, Inc. "The only way to be sure that you're making sound decisions is to work in concert with a n unbiased third party who ca n point out when your choices a re m ore emotionally based than you may want to believe."