Behaviourally Adapted Investing

Posted: 15 Jun 2015

See all articles by Shweta Agarwal

Shweta Agarwal

Elston Consulting Ltd.

Henry Cobbe

Elston Consulting Ltd.

Date Written: December 17, 2014

Abstract

Investor behaviour is a key factor in the making and the management of investment decisions. Investors are subject to behavioural biases in both these phases of the investment process. Some behavioural biases can be detrimental to investment outcomes. Biases that lead to these behavioural pitfalls can in fact be identified and solved. In this paper, we review some common behavioural biases that affect investment decisions and explain how ‘simplicity’ is key to mitigating behaviours that can cause self-harm. We outline the principles of a behaviourally adapted investment propositions that can help deliver robust simplicity, transparency and good value that customers seek out. Outcome-oriented funds may need to be carefully designed ‘under the bonnet’ to address diverse investment objectives. However they must also be necessarily simpler and easier for customers to evaluate and understand. Advisers and investors are increasingly outsourcing the asset allocation strategy and ongoing management to cost effective outcome-oriented funds. This enables advisers to focus on assisting their clients navigate the complexity of financial planning more effectively.

Keywords: Behavioural finance, portfolio choice, investment decisions, government policy and regulation

JEL Classification: D03, G11, G18

Suggested Citation

Agarwal, Shweta and Cobbe, Henry, Behaviourally Adapted Investing (December 17, 2014). Available at SSRN: https://ssrn.com/abstract=2615059

Shweta Agarwal

Elston Consulting Ltd. ( email )

20-22 Bedford Row
London, WC1R 4JS
United Kingdom
+442070428044 (Phone)

HOME PAGE: http://www.elstonconsulting.co.uk

Henry Cobbe (Contact Author)

Elston Consulting Ltd. ( email )

20-22 BEDFORD ROW
LONDON, WC1R 4JS
United Kingdom
+442070428044 (Phone)

HOME PAGE: http://www.elstonconsulting.co.uk

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