Behavioural finance: Another investment dimension

Findings from a recent Schroders survey of global investment trends illustrate the importance of understanding behavioural finance

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Do you spend more in the supermarket when you’re hungry? Would your friends describe you as someone who always takes an optimistic view of a situation? Have you ever made an important financial decision based on a hunch?

We all like to think we make decisions based on logic. In reality, many of the decisions we make are skewed by our inherent tendencies to think in certain ways, known as ‘behavioural biases’.

Behavioural finance is an area of academic study which examines these biases by applying cognitive psychology to economics and finance, helping to explain why we are prone to making irrational financial decisions.

Maybe you are over-confident in your investment ability? Our recent global research found that 88% of investors are confident in their ability to make sound investment decisions, highlighting the prevalence of ‘overconfidence bias’.

Or perhaps not planning far enough ahead is stopping you from realising your goals? Of the investors we surveyed, 46% favoured a short-term approach that generates returns in under two years, while only 12% preferred a long-term approach. This demonstrates how often ‘present bias’ leads investors to focus on the here and now rather than the future.

Imagine how much your finances could benefit if your decisions were influenced more by insight than by instinct – incomeIQ is designed to help you achieve just that.

Understanding your behaviour

The income IQ test

The incomeIQ test will assess you for these and a range of other biases in 10 simple questions, empowering you to be a more informed investor.

© 2016 Schroders