🔸Loss aversion is a cognitive bias, which explains why individuals feel the pain of loss twice as intensively than the equivalent pleasure of gain. As a result of this, individuals tend to try to avoid losses in whatever way possible.
Q: How to avoid it then?
➡️No one likes to make a loss, but loss aversion can cause you to lose more money or make less money than what you feared to lose.
- You can avoid loss aversion by not getting too emotionally involved in your investments. There are risks involved in investments, many of these risks are beyond your control and you cannot be right all the time.
Sometimes, it is better to book a loss and move on to alternative investment options. It is difficult to separate emotions from investing, but successful investors are able to do it. A good financial advisor can help you overcome this behavioural bias.
- You should do what is right to meet your financial goals including selling funds that are underperforming consistently and switching to better funds.
Source: The Decision lab, CFI, Mirae Asset Fund website
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