Why Emotional Decisions May Be Ruining Your Investment Return

Choppy markets can lead to emotional decisions. How do you keep your actions in check when emotions are running high? A recent J.P. Morgan Market Insight shared the following observation, “While institutional investors typically follow policy targets, which naturally enforce disciplined investing, retail investors face behavioral biases that often stand in the way of optimal decision making.  Overcoming behavioral biases requires discipline and guidance, but it may help investors generate more attractive returns in the long-run.” In looking at the first chart below from J.P. Morgan, you will notice that retail investors (the “do-it-yourselfers”), on the whole, are acting in complete opposition to institutional investors in the markets.  The result of these opposite actions over time is that long term returns earned by the average investor are well below what actually occurred in the markets, as can be seen by the second chart below.         These vast differences in actual returns can be at least partially explained by the way investing decisions are made in institutional environments vs. retail investors.  Rather than following regimented guidelines, individual investors subconsciously allow behavioral biases Read on! →