Six Strategies to Help You Reduce Investing Bias
Investing can be complicated, and our emotions often make it even more challenging. Investing bias will alter our investment decisions, usually for the worse. So, in this post we’ll discuss six practical ways to reduce investing biases, making your investing journey clearer, calmer, and more successful.
Ignore the “Ups and Downs”
Making decisions based on past performance has proven to be a losing strategy. So, one effective way to avoid investing bias is to ignore the daily “ups and downs” of financial markets by removing the unrealized gains & losses from your portfolio reporting. Afterall, “past performance is no guarantee of future results”.
Share the Load
Consider adding others to your investment decision-making process. This person could be your spouse or your investing buddy. Or, they could be a professional investment advisor or an investment advisory committee. By adding others to your investment decision-making process, it will help reduce investing bias by keeping your emotions in check. Sharing investment decision-making responsibility with others will make your decisions less impulsive and more consistent.
Regular trading can often lead to poor decision-making, as it increases the likelihood of being influenced by investing biases. Instead of constantly trying to time the market, adopt a buy-and-hold strategy. This approach involves buying quality investments and holding onto them for decades. Such a strategy reduces the impact of short-term market fluctuations and lowers the effect of biases.
Invest on a Schedule
Another way to reduce investing bias is by setting up a regular investment schedule. This strategy, also known as dollar-cost averaging, involves investing a fixed amount of money at regular intervals—weekly, monthly, or quarterly—regardless of market conditions. This approach not only takes emotion out of investing but also reduces the risk of making large investments at inopportune times.
Codify your Goals
Clearly defining and documenting your investment goals can help ensure that your investing strategy aligns with your objectives. Whether your aim is to grow wealth, generate income, or preserve capital, write these goals down and review them regularly. This exercise will serve as a reminder of your financial targets, helping you to stay focused and avoid decisions driven by fear, greed, or other biases.
Simplify your Investing Process
Complexity can often lead to confusion, making it easier for biases to creep into your investing decisions. Simplify your investing process to gain more clarity. This could involve investing in low-cost index funds instead of picking individual stocks or consolidating your investment accounts to maintain a clear overview of your portfolio. By simplifying your investment strategy, you can minimize the opportunities for biases to influence your decisions and keep your focus on your long-term objectives.
Overcome Investing Bias
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