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What is behavioural investing?

Behavioural investing looks at how emotions and psychological biases impact the decisions we make as investors. Instead of always being rational, we’re often influenced by fear, greed, overconfidence, or herd mentality – all of which can lead to poor investment choices.

Even experienced investors fall into these traps. The key is recognising your own behavioural patterns and learning how to work with your psychology, not against it.

Why does psychology matter in investing?

Investing is emotional. Seeing your portfolio rise feels great. Watching it fall? Not so much. But reacting impulsively to short-term market movements can quickly derail your long-term strategy.

When markets dip, panic selling can lock in any losses. When markets surge, FOMO can push people to chase risky trends, and the instant market coverage we can access is driving these trends.

Understanding how your brain responds in these moments can help you stay calm and make more rational decisions.

The most common behavioural investing mistakes 

Here are some of the biggest traps to look out for:

• Panic selling – Selling your investments when markets fall, locking in losses and potentially missing out on the recovery.
  
  
• Overtrading – Constantly buying and selling, thinking you can ‘time the market’. This often racks up fees and most of the time underperforms long-term strategies.
  
  
• Confirmation bias – Only seeking information that supports what you already believe, and ignoring anything that challenges your view.
  
  
• FOMO (Fear of Missing Out) – Jumping on hype trends or following the crowd into hot stocks without doing your own research.
  
  
• Recency bias – Placing too much importance on recent events and assuming they’ll continue, like believing a falling market will never bounce back.

How to avoid behavioral investing mistakes

If you want to avoid these common mistakes, make sure you:

• Have a plan – Create an investment strategy that aligns with your goals, time horizon and risk tolerance, and stick to it – especially during periods of market noise.
  
  
• Automate your investing – Using regular contributions and pound-cost averaging takes emotion out of the equation and helps you invest consistently.
  
  
• Zoom out – Always take a long-term view. Markets fluctuate in the short-term, but historically, they trend upward over time.
  
  
• Stay informed (not obsessed) – Stay educated, but avoid doom-scrolling financial news. Not every market dip needs a reaction.
  
  
• Review, don’t react – Instead of making snap decisions, schedule regular check-ins on your portfolio to assess and rebalance if needed.

Understanding investment fees & costs

When you invest through a platform, there are often platform fees charged to cover running costs. This is often a very small fee — with Chip, it’s 0.25% of your portfolio value (or 0% with a ChipX subscription*). 

In addition to your platform fee, there will also be an ongoing management charge from the fund provider, if you choose to invest in investment funds. 

The costs of these can vary, and generally, passive index funds are lower cost, and actively managed funds are a little more expensive, as someone is actively adjusting the funds investments. 

We will go into investment fees and costs in more detail in the following guide. 

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. 

*A monthly or annual ChipX membership fee is required and fund management charges apply.

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