Lesson 3: The experiences we have early on in our life determine our financial decisions?
We all grow up differently. While something may look natural to you, it may be unheard of for someone else.
Just think about it this way: Is your childhood similar to someone born in 1960? 1980? The entire twentieth century? Of course not!
There are people growing up in times of a financial crisis. On the other hand, there are people who experience bull market trade even for a decade.
As such, the two types would have very different opinions about what a good investment strategy consists of, whether a portfolio should be stock-based or bond-based, or how much risk is worth taking.
While we may think that we know it all or have no hidden biases, a study conducted by Ulrike Malmendier and Stefan Nagel proves that people invest according to how the economy looked like when they were young adults.
As such, someone who’s experienced high inflation may not see bonds as a good investment, while someone who’s been through turbulent times for the stocks may think the opposite.
It is of utmost importance that we acknowledge our hidden biases and thinking traits, so as to be able to diminish them and make better choices. In general, any financial decision should always be backed up by sound analysis, reliable facts, and a mind open to a new perspective and constructive criticism.
Moreover, you should work on your ability to adapt to trends and destroy your phobia of new ones, even if it contradicts your inner beliefs.
The money market leaves no room for subjectivity, biases, or impulsive decisions. Rushed investments can wipe off years of savings, while valuable ones can speed up your journey to financial freedom.
Learn more such insightful concepts with real case-studies from ebook on Trading Psychology.