It’s All in Your Head – Behavioral Biases in Financial Decision Making

It’s All in Your Head – Behavioral Biases in Financial Decision Making

Does your self-talk narrative have all the disparate pieces of your life fitting together neatly like a completed jigsaw puzzle? One of our important roles as financial planners is to insert a healthy dose of reality into your neat and orderly imaginary life story.

Financial planning is like a security guard standing outside your inner narrative to make sure your story doesn’t conflict with your most important long-term aspirations.

Life is Not Linear – Neither is the Market

Your financial life usually doesn’t move in a straight line. Life is often a series of confusing things that don’t always work out the way that you imagine.

The financial markets don’t advance in a linear fashion either. While the long-term annual returns for the broad stock market average around 10% annually, there are only a few calendar years since 1926 where the actual returns were within 2% of the historic 10% average.

Is Your Mind Skewing Reality?

Your inner narrative is a combination of conscious thoughts and unconscious beliefs. Sometimes, these beliefs are at odds with reality. The attraction of your beliefs can easily eclipse the truth, resulting in behavioral biases in financial decision making.

Your daily thoughts, feelings, and beliefs create a mental construct that can either help or interfere with accomplishing your goals. Your financial decisions and priorities are directly impacted by your self-talk.

It’s not uncommon for us to see prospective clients who think they have everything all worked out, assuming their base operating beliefs hold true. This can be very dangerous territory.

The Impact of Your Political Views on Your Finances

Particularly in major election years, it’s easy to reach investment conclusions from your political beliefs that eschew other possibilities. Whatever your political views may be, it’s best to keep these separate from your portfolio.

Your worldview is based largely on your personal life experiences. Since we all have unique experiences, our views on politics, religion, and money vary widely. Your neighbors, work colleagues, and family members all have life experiences that differ from your own. Therefore, their perspective may be substantially different than yours.

One of my favorite quotes from Will and Ariel Durant’s book The Lessons of History says we should “respect each others’ delusions.” We all carry around delusions, some of which contain elements of truth and some that are incomplete or simply wrong.

Self-talk has been studied for a century or more, but recent times have brought about an increase in the volume and complexity of these inner narratives. The mental distractions that fill up your daily life are increasingly hard to ignore.

How to Block Out the Noise

Just as you rely on professionals for help in many areas of your life, utilizing an experienced financial PLANNER can be crucial for finding balance between your beliefs and reality.

The gap between where you are today versus where you need to be in the future is often derailed by behavior. A good financial planner can help bolster your discipline to stay focused and avoid straying too far away from your plan.

There are almost endless investments today, but most of them aren’t appropriate for you and your situation. As author Nick Murray says, sometimes the best financial advice can be, “don’t do that.” Start there. Ready for a real conversation?


Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website for other important disclosures.