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Habits That Can Be Costly In Making Investment Decisions Featured

10 Jan, 2023
  • Written By: Frederick Arkoh

A habit is a routine activity that later forms part of our life and tends to occur subconsciously. It is often said habit defines your personality. In the same vein habit can define your investment decisions. Individuals tend to make investment decisions based on their behavior or because of a situation they went through. The following are some few habits that can influence your investment decision.

Over Confidence bias

According to the Corporate Finance Institute, overconfidence bias “is a tendency to hold a false or misleading assessment of our skills, intellect or talent. In short, it is an egotistical belief that we are better than we actually are”. For example, a lot of men will answer in affirmative to a simple question “who manages finances better, men or women?’’ Over confident individuals usually have “I knew it” kind of attitude to everything. The behavior of being overconfidence can lead you to making wrong investment decisions. No matter your level of education you should know that having basic financial knowledge is not accurate in making investment decision. Try to seek expert advice even if you have knowledge about an investment product that you are interested in. You will need to understand the dynamics of investment, the impact of market and economic conditions on investment. Avoid believing that the outcome of every situation must be to your advantage because that is the outcome you desire.

Fear of Change

This behavior is portrayed by people as a result of their past experiences, especially in the investment space. People with this habit are afraid to invest and tend to be very risk averse. They usually develop a negative view about every situation and jump into every loose information which tends to suggest “doom” for their investment. For instance, the rumor of capital restructuring by government coupled with the directive by Securities and Exchange commission on the use of Mark-to-Market valuation has caused a lot of panic withdrawals by individuals who have the fear of change habit. You need to understand that there is no guaranteed situation in the investment space especially with returns. Speak to your financial advisor about every financial information or rumor you come across which you think may impact your investment.

Fear of Action

This habit is usually adopted or shown by people who in one way or the other have made some bad investment decisions due to the influence by friends or family. People with this habit usually need a push from a friend or relative to make a decision. Basically, they are not able to take an “action” on their own. These caliber of people do not do any due diligence or ask the right questions about the company or the investment scheme before jumping unto the investment. Their source of information is friends and family. Fear of action individuals are convinced or need confirmation from friends and family to invest in particular schemes and usually tend to play the blame game if they do not get the desired result. Be very inquisitive about any investment products that are introduced to you by friends and insist on speaking to an expert/official from the company.

Information Overload

People with this habit are always engulfed with information which impairs their decision making. They usually want more information about a particular product before they make a decision. There is a lot of information available in this modern day of technology and digitalization. Financial information can now be found in the print media, through advertisement on radio, TV, all social media platforms and the internet. For instance, a simple search of “Right Investment” on google can give you a lot of result which you might find difficult reading all of them.  Information overload may lead you to either make a wrong investment decision or postpone an investment decision. People who feel overwhelmed by financial information stand the risk of making a wrong financial decision. Try as much as possible to speak to a financial/investment advisor whenever you feel overwhelmed with information.

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