{"id":5644,"date":"2022-12-23T08:51:33","date_gmt":"2022-12-23T08:51:33","guid":{"rendered":"https:\/\/s9financialplanners.com\/blog\/?p=5644"},"modified":"2024-12-10T09:00:16","modified_gmt":"2024-12-10T09:00:16","slug":"behavioural-finance-stop-irrational-personal-investment-decisions","status":"publish","type":"post","link":"https:\/\/s9financialplanners.com\/blog\/behavioural-finance-stop-irrational-personal-investment-decisions\/","title":{"rendered":"How behavioural finance can stop you from taking irrational personal investment decisions"},"content":{"rendered":"

\u201cInvesting isn\u2019t about beating others at their game. It\u2019s about controlling yourself at your game\u201d – Jason Zweig<\/p><\/blockquote>\n

The above quote means a lot when we see our life from a magnified view. Let it be any financial decisions we take, at some point in time we do have comparisons, status, and other external factors affecting it. Due to these comparisons, an investor at times misses to take the right investment decisions at a given period of time.<\/p>\n

This is a behavior pattern that I have observed in many investors when they opt to plan their financial journey. The reason behind writing this blog is to help investors understand irrational investment decisions. So to avoid making an irrational investment decision, it is imperative that investors know the importance of behavioral finance as a subject when we deal with our personal finance. So let\u2019s start knowing behavioural finance in layman’s language.<\/p>\n

What is Behavioural Finance?<\/h1>\n

Behavioral finance is the study of the effects of psychology that affects the behavior of investors and the financial market as a whole. Basically, it throws light on a number of reasons like lack of self-control, not taking decisions in your own interest, and other personal biases neglecting the facts.<\/p>\n

Behavioural finance uses psychology and economics to understand the reasons behind the wrong financial decisions that were taken out of emotional pressure rather than logic.<\/p>\n

For better understanding, I would want to share a personal experience here –<\/p>\n

It is said that external factor plays a major role that makes your behavioural change. I love trekking and on weekends I keep going on different treks. This time we were heading to the Valley of Flowers to experience some scenic beauty. Well, this was the thing worth visiting when we asked a few of the other trekkers who have been there already. With sheer excitement to see some beautiful landscape, we all reached there. We saw the flowers and it turned out low on expectations. First, there weren’t as many flowers as described, and according to us were also not as beautiful as we imagined them to be. Here I want to bring attention to the point that every individual has a different view about the same thing.<\/p>\n

The same goes with finances as well. What we think is crazy financial decisions<\/a> for us must be ideal for some other person. Few investors say that FDs are good or rather they must have been born in the time frame when FDs were the only option available. But that doesn’t mean they work for all the new investors. Today there are multiple choices of investment avenues available in the financial markets. If someone says that a particular investment has worked or has not worked for them, we need to ask 3 questions –<\/p>\n