Sponsored by Charles Schwab Investment Management
Insights from Omar Aguilar
CIO of Passive Equity and Multi-Asset Strategies
Unprecedented and uncertain, two words that aptly describe 2020, are also two conditions that can activate behavioral biases. Investors have been swamped by a confluence of two distinct biases during the COVID-19 crisis. Loss aversion, a bias with both cognitive and emotional overtones, is the preference for avoiding losses over achieving equivalent gains. Confirmation bias, from the brain’s rational side, is the tendency to seek information that supports our pre-existing beliefs and ignores contradictory information. This edition of our recurring behavioral finance insights examines loss aversion and confirmation bias in the context of market activity during the global pandemic. We look at how these biases influenced Millennials and Baby Boomers in particular and share ideas that may help advisors achieve more successful long-term outcomes for their clients.