To continue on from January's emotional biases blog, we wanted to discuss another influence on those biases.
- What is it? Status quo bias is an emotional bias in which people respond to new circumstances by doing nothing instead of making appropriate adaptations. People are generally more comfortable keeping things as they are. This bias might prevent an investor from looking for opportunities where change may be beneficial.
- What are the effects on investors? Investors unwilling to adapt to new information may end up with portfolios that are inappropriate given their circumstances, perhaps making an old investment no longer suitable as markets shift. For example, people tend not to shift their allocations in their retirement portfolios even as their time horizon and market cycles change.
This is why its important to meet regularly to ensure your investment policy is in-line with your investment objectives.