How Investor Biases and Inertia Affect Portfolios—and How to Overcome Them
Behavioural economics might not be the first consideration when managing a portfolio, but it could be the missing link to better investment outcomes.
In this episode of Vanguard’s Better Vantage, Andy Reed, head of investor behaviour research at Vanguard, explores how behavioural economics bridges the gap between what investors should do and what they actually do.
“Our job is to identify the gaps between what economists say is the normative thing to do and what people actually do with their money in the real world,” Reed explains.
He notes that while most portfolio decisions aren’t urgent, certain moments can significantly shape long-term results. “Often with your portfolio, it’s not like you have five minutes to make a life-or-death decision,” he says. “But there are moments that matter, and if you make the right choice, you’ll be in a much better position over time.”
Reed also encourages investors to examine their financial blind spots and adopt strategies that support their long-term goals.
Rick Maggi, Financial Advisor Perth, Westmount Financial