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Behavioural biases are prejudices, preconceived notions or beliefs that influence your decisions. When such biases act on your financial activities, they can blind you to seeing the bigger picture. As such, you might make investments that might prove costly. As such, it is always recommended to overcome any bias that you might have and invest with a clear outlook. But to do that, you need to identify your biases. 

To that extent, here are some common behavioural biases, their effect on your investments and how you can overcome them.

Procrastination:

In simple words, procrastination means delaying. When it comes to finances, procrastination is a bad habit as it prevents you from investing timely. You keep on pushing your investments to a later date and lose out on the potential returns.

How do you overcome it?
Do not delay what can be done today. Especially with savings and investing. Invest your savings now to earn returns and allow compounding to work its magic.

Herd mentality:

Herd mentality means following or doing what others are doing. For instance, if your friend invests in a particular asset, you also do the same believing that if it is beneficial for your friend, it would be beneficial for you too. However, what you forget is that everyone’s investments need, risk appetite and horizon are different. What works for others might not work for you. Your friend might be a risk-taker investing in stocks. But if you are risk-averse, stock investments would not be suitable for you.

How do you overcome it?
Assess your goals, risk appetite and horizon. Invest according to your goals and needs and build a unique portfolio.

Chasing after trends:

Many individuals chase trends thinking that such trends would help them grow their wealth. For example, if gold prices soar in the short term, many investors divert their savings to gold thinking it would give them attractive returns. Moreover, another bias is believing in hot tips which might not always work in your favour.

How do you overcome it?
Before following trends, analyse them. See if the trend has any potential and whether it matches your investment needs. Hot tips should stay away from. Do your research and then invest.

Mental accounting:

This means using your money differently based on how you earn it and how you intend to use it. For instance, if you earn a bonus, you might be inclined to spend it on luxuries rather than using it to fund your goals. On the other hand, your regular income is directed towards meeting the necessities of your life rather than spending them on luxuries.

How do you overcome it?
Use your money wisely, however you earn it. Prioritise your debts and investments and then splurge the remainder on luxuries or whims. 

Overconfidence:

Many investors tend to get overconfident in their investments failing to see where they might be going wrong. This might lead to a loss and a missed opportunity in investing in suitable avenues.

How do you overcome it?
Though you might be knowledgeable, always test your knowledge and stay updated about the latest changes. Review your investments regularly to check if they are doing as expected or if you need to make some changes. 

Find out which bias you have and then overcome it. Invest with a clearer view and understanding so that your finances help you achieve your goals. Opt for Asset Allocation and allocate your savings to different avenues to create a diversified portfolio. Stick to your goals and Asset Allocation and avoid biases. Click here to watch the video of Asset Allocation.