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ABCs of Behavioral Biases (A to F)
Four self-inflicted biases that knock a number of investors off-course are anchoring, blind spot, confirmation and familiarity bias.
In times of economic volatility, it is important to remember that markets have historically rewarded long-term investors.
This post was prepared and first distributed by Dimensional Fund Advisors.
(1) US Stocks: Russell 3000 Index. US Bonds: Bloomberg U.S. Aggregate Bond Index.
(2) S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment
(3) The data showed a 71% chance (10 of 14) of a three-year positive return following a yield curve inversion. To compare, we measured returns three years following every month-end between January 1985 and December 2014 in each of the five markets based on the local currency MSCI indices. The average chance of a three-year positive return in those five markets was 77%.
(4) The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings per year and may not change the target rate at every meeting. The FOMC may also change the target rate multiple times within the same month; in such instances, we aggregate all changes by month. (link)
(5) “Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic,” New York Times, May 12 2022
(6) FAANG stock returns are computed as the average of Facebook (Meta), Apple, Amazon, Netflix, and Google (Alphabet share classes A and C) weighted by market capitalization at beginning of month.
(7) Commodities returns represent the return of the Bloomberg Commodity Total Return Index.
This information is provided for registered investment advisors and institutional investors and is not intended for public use. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Past performance is not a guarantee of future results. Indices are not available for direct investment.
Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. Named securities may be held in accounts managed by Dimensional. The content above pertains to cryptocurrency. Certain cryptocurrency offerings may be considered a security and may have different attributes than those described above. Dimensional does not offer cryptocurrency.
Four self-inflicted biases that knock a number of investors off-course are anchoring, blind spot, confirmation and familiarity bias.
Legendary economist Benjamin Graham once stated that ‘your own behavioral biases are often the greatest threat to your financial well-being.’
If you file tax returns separately AND are separated from your partner, colleges consider you a two-household family.
Take some time to map out how to pay for all four years before your student gets the bill for freshman year.