How psychological biases can make a mess of our financial decisions.

Here’s a good primer on behavioral finance and how  it relates to your personal finances.

Click Here To Learn About Psychological Biases & Personal Finance

Article Introduction (Via WSJ)

If you’ve watched your 401(k) lose 40% of its value, seen the U.S. banking industry crumble or simply read the headlines, it could be a challenge not to respond out of angst. After all, it’s only human to react emotionally to the news—especially when your money is on the line. But when emotions become the overriding reason for making investment decisions, you could end up losing more money in the long run.

Additional Article Excerpt (Via WSJ)

The field of behavioral finance seeks to explain the set of psychological biases that affect people’s investment decisions. If you couldn’t bring yourself to sell a loser stock, or if you have picked investments because they felt “safe,” there’s a good chance you’re managing your money with your heart and not your head. Since our biases are aggravated when our brains feel overly excited or afraid—like when the Dow drops 1,000 points—you might find yourself making investment moves that you’ve never considered before, or feeling particularly panicky about your money.

Another type of bias can cause an investor to ignore realities and do nothing.

“I can’t sell now. Look how much I have lost!” is what Eric Toya, a Redondo Beach, Calif., financial adviser, heard recently from a client in her mid-30s. Mr. Toya’s client was reluctant to realize her losses on a large-cap stock she owned which he had strongly advised her to sell before it did more damage to her portfolio.

Click Here To Learn About Psychological Biases & Personal Finance