4 investment biases that could be influencing your decisions

You may not realise it, but your biases could be standing in the way of healthy investment decisions.

Left unchecked, behavioural biases can result in impulsive decisions, losses or missed opportunities, and a poorly balanced portfolio that exposes you to an unnecessary and unsuitable level of risk. As a result of these investment choices, your long-term strategy – such as retiring at a certain age – may veer off course.

By being aware of your own behavioural biases, you could spot when they’re starting to lead your investment strategy astray and nip your impulses in the bud.

Read on to learn about four common behavioural biases to look out for and how they could impact your investment strategy.

1. Recency bias

It’s natural to inflate the significance of recent events.

For example, when markets drop, you might feel anxious or panicked – such as earlier in 2026, when the outbreak of war in the Middle East triggered global market volatility. But over time, a short-term downswing is likely to become one of many small bumps in your long-term investment journey.

Placing too much emphasis on recent events can allow temporary market performance to influence your investment decisions, regardless of long-term evidence. As a result, you may be tempted to abandon your investment strategy in a bid to limit losses or boost returns – for example, moving your portfolio to cash when share values fall.

While headlines can be worrying, especially during periods of high volatility, it’s important to take a step back and see the bigger picture. Instead of allowing short-term performance and news reports to dominate your decision-making, focus on long-term evidence, remind yourself of your goals, and seek guidance from your financial planner.

Remember: Markets have historically trended upwards over the long term, even after significant downswings. So, while past performance is not a guarantee of future trends, sticking to a suitable investment strategy over the long term may be more likely to result in a positive turn than taking a reactive approach.

2. Herd mentality

The Financial Conduct Authority (FCA) found that 63% of 18- to 40-year-olds believe that hype around an investment product means it’s a good opportunity.

However, 40% regretted investing in hyped investment products.

This is herd mentality in action. This type of bias could cause you to make choices based on the excitement of potentially quick gains or fear of missing out on a profitable opportunity, rather than making independent judgements based on evidence.

This can lead investors to buy shares at inflated prices, with the hype pushing values up before they are eventually realigned with company valuations. Alternatively, you may panic-sell when values are low, potentially missing out on future gains.

If you are tempted to hop on the bandwagon, it’s crucial to do your due diligence first and seek financial advice. After all, the “herd” has been wrong before.

Remember: Even if an investment is a good opportunity for others, that doesn’t necessarily mean it’s suitable for you. Every investor has different circumstances, preferences, risk appetites, and investment goals. A financial planner can help you select investments suitable for you, not for the herd.

3. Familiarity bias

When selecting your investments, you might naturally gravitate towards those you’ve heard of before. You may instinctively believe large household names or funds recommended by a friend are less risky than lesser-known entities, regardless of their performance.

In some cases, you might favour certain asset classes or geographies. For example, you might stick to UK-listed companies as they’re more familiar. However, Fidelity reports that the UK represents less than 4% of global indices. By overweighting your portfolio in UK assets, you could be missing out on growth happening elsewhere.

Staying in your comfort zone can create a false sense of security. You may feel your money is “safer” when, in fact, your portfolio lacks diversification and has a higher risk level than is appropriate for you.

Remember: Stepping into the unknown may feel disconcerting, but the J Edward Sellars team are always on hand to offer our investment expertise, analysis, and guidance as you build towards your goals.

4. Loss aversion

If you have a loss-averse mindset, you may feel the pain of losses more keenly than the elation of gains.

In fact, a 2022 study by LV found that 45% of UK investors were more concerned about potential losses than probable gains.

If this sounds like your mindset, you may make financial decisions that prioritise limiting potential losses, rather than aiming for returns.

For instance, you might opt to “play it safe” by sticking to cash and lower-risk opportunities. Not only could an overly cautious approach limit your growth potential, but your choices may not be as safe as they seem. If the interest you earn on your cash falls below the rate of inflation, your money will lose spending power over time.

Loss aversion could also lead you to sell investments at an inopportune time – as you read earlier, market downswings could prompt you to sell too soon and lose out on potential future growth.

Remember: Volatility is part and parcel of investing, so it’s important not to act impulsively based on how you feel about market fluctuations. If you’re concerned about falling values or considering cashing out while values are high, speak to your financial planner before making any rash decisions.

Independent, expert investment guidance from J Edward Sellars

Resisting your natural biases can be challenging, especially when your goals are at stake. At J Edward Sellars, our financial planners can offer expertise and analysis to guide your investment choices as you build towards your goals.

We can create an investment strategy tailored to your needs, circumstances, and risk appetites.

Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.