Behavioural finance and why it matters

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Identifying and managing the biases that investors exhibit can lead to better investment outcomes.

The world of finance and investments is often associated with numbers and statistics, but the real-world experience looks a bit different, with behavioural patterns often playing a significant role in financial markets. Behavioural finance is the study of the psychological influences and biases that both investors and financial practitioners experience when making financial decisions.

To accommodate such investors, we often employ the bucket or layered approach to portfolio management, where each financial goal, whether it be income or growth, has its own sub-portfolio. The total portfolio is often less optimal than the perfectly-rational portfolio, but the client is more likely to remain invested, leading to a better overall outcome.

 

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