It’s Your Lucky Day…
It’s your lucky day! You just found $100 on the street. Would you put that money into a savings account? Would you buy some new shoes? Would you use it to pay a bill or pay off a debt? Or maybe you would invest it…
The answer lies in behavioral finance – the study of how psychology impacts our financial decisions. There are various pitfalls related to behavioral finance but for today, we are going to dive into loss aversion.
What Is Loss Aversion?
Loss aversion is the idea that people are more sensitive to losses than they are to comparable gains when making financial decisions. For this reason, people will sometimes choose to “save” rather than “invest.” This might look like placing disposable cash in a savings account or Certificate of Deposit, to name a few examples.
These types of accounts are great for short-term savings or an emergency fund. However, inflation erodes the value of savings over time – a topic we all know too well currently.
The good news is that loss aversion can be overcome by working with a trusted advisor to develop a savings and investing strategy that fits your risk level and goals.
Emotion and Finance
While it can be difficult to completely remove emotion from financial decisions – especially during times like these – developing an investment strategy, such as establishing a set investment schedule, can greatly assist in reducing some of that emotion you often feel when you make financial decisions.
Thank you for your time and we welcome the opportunity to be your family’s trusted advisor.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Past performance is not indicative of future results. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice.For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.