Behavioral Finance
Neuroscience provides key insights into how investors make financial decisions.
Many of the principles of behavioral finance are finding validation in neuroscience — the physiological study of the brain and nervous system.
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There's nothing wrong with making mistakes. The problem is making the same ones over and over.
If you understand why your clients make some of the poor decisions they do, you can move your relationship with them to a new, more productive level by helping them:
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Intuition and emotion play a major role in decision-making.
The origins of behavioral finance are rooted in cognitive psychology, which is the study of how people learn, what they know, and how they act on what they know.
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You start laying the foundation of your credit history the first time you borrow.
There’s a vast — and constantly growing — amount of information about how consumers use credit.
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Short-cuts can save time but they can send you down the wrong road.
Think about the torrent of sensory data that floods the human brain and nervous system every moment of every hour.
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Looking through a different frame alters your perspective.
Retirement savings plans are a great success. When a plan is available, the majority of employees sign on.
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Studies of the brain are transforming long-held assumptions about financial behavior.
While economists have long recognized that emotions play a role in financial decisions, they have generally excluded feelings, impulses, and biases from their theoretical frameworks because emotions couldn’t be measured objectively or represented mathematically.
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It’s time for a new look at how investment decisions are made.
As an investment advisor committed to helping your clients meet their financial goals, how do you feel when they make investment decisions that aren’t in their own best interests?
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You may want to redesign the way you present classic investment strategies.
As you learn more about why your clients make some of the investment decisions they do, you’ll be more adept at detecting the warning signs.
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Don't overlook the tax consequences when figuring the return on your investments.
Taxes are a vital part of any investment decision. But always remember that taxes are only a part of an overall investment strategy.
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Biases explain why some people are risk-averse and others take excessive risks.
The challenge of helping clients overcome the biases that limit their investment success is complicated by the conflicting emotions that drive their behavior.
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