One of the biggest risks to long-term investment success isn’t market volatility – it’s our own behaviour. A common challenge investors face is something known as “present bias”: the natural tendency to prioritise immediate comfort or short-term outcomes over long-term benefits.
In practice, this can show up in subtle but costly ways. You might feel tempted to pause contributions when markets fall, take profits too early after a strong run or hold more cash than planned because it feels ‘safer’ right now. These decisions often provide short-term relief – but they can quietly undermine your long-term objectives.
Why Present Bias Matters for Investors
Present bias is rooted in how we make decisions. Humans are wired to favour immediate rewards, often undervaluing future outcomes – even when those futures are clearly more beneficial.
For investors, this creates a tension:
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Short-term thinking reacts to market noise, media headlines, and emotions.
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Long-term investing depends on consistency, patience, and discipline.
Even well-informed investors are not immune. Knowing the plan is one thing – sticking to it when markets become turbulent is another.
Recognising the Trap in Real Life
You may be encountering present bias if you notice yourself checking your portfolio daily and reacting emotionally to movements or feeling discomfort during downturns and considering changing your investment plan.
These feelings are normal but left unchecked they can reduce returns and increase risk over time.
Practical Tools to Stay on Track
The good news is that present bias can be managed. With the right structures in place, you can reduce the impact of short-term thinking and stay aligned with your long-term plan. Some tools that can help investors manage present bias are as follows:
- Focusing on the Plan, not the Noise – markets move daily but your financial goals are long-term. Anchoring your decisions to your investment plan and time horizon – rather than short-term news, helps to maintain perspective.
- Set Clear, Personal Goals – when your investment plan is tied to meaningful goals (retirement, financial independence, lifestyle choices), it becomes easier to prioritise the future over the present. Clarity creates commitment.
- Limit Unnecessary Monitoring – constantly checking your portfolio can amplify emotional responses. Consider reducing how often you review performance – less frequent monitoring can lead to better long-term behaviour.
- Use Advice as a Behavioural Anchor – a financial adviser plays a critical role in helping you stay disciplined during periods of uncertainty. Having a structured process and a trusted second perspective can prevent reactive decision-making.
At SBS Wealth, our goal is to ensure that more Kiwis receive financial advice – our team of experts are standing by to help you out when things get tricky!
Book an appointment today at www.sbswealth.co.nz
What we’re reading: Understanding Market Psychology: Impact and Predictions