Our emotions naturally make it difficult to make smart investment decisions, such as buying low and selling high. In reaction to stress, the reasoning part of our brain tends to shut down and survival instincts kick in.1 That’s why many investors sell during market declines—thereby locking in losses—and return only after stocks have recovered. Research suggests that these behavioral biases are a key reason why the average investor underperforms the market.
Four strategies to overcome your natural biases and invest logically
One reason that many investors fail to fully realize the market’s investment potential is that the physiology of our brains might be working against our best interests as investors. Minimize the damaging effects that these tendencies have on long-term goals by watching for these warning signs and following a few simple principles.
