“The investor’s chief problem—and even his worst enemy—is likely to be himself.” Why is this so? This paper, part two of a series, uses the tenets of behavioral finance to examine how and why our actions often impede good financial decision making.
In part one, (SAF Behavioral Finance – Part I) we introduced the topic of behavioral finance and how our biases can prevent us from making the best financial decisions. We discussed three common and powerful biases: loss aversion, conservatism, and hindsight. In part two, we will discuss three more biases and show how they can interfere with an important financial objective— investing retirement funds for growth in the face of risk and uncertainty. In addition, we will provide suggestions for overcoming these tendencies. The goal: to help you become a better informed and successful investor.