Familiarity bias
Do you only investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition in GICs or a handful of stocks because you feel unfamiliar with other investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition choices? It’s understandable to be anxious about the unfamiliar, but learning more about different investments that may be suitable for you can help make your portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition less risky.
Overcome behavioural biases to reach your investing goals.
For most of us, investing isn’t a full-time job. We don’t have time to understand the pros and cons of every possible investment. As a result, when making investment decisions, we try to make things simpler for ourselves by gravitating towards what’s familiar. For example, we may only invest in companies with brands that we recognize or in companies our family or friends invest in.
The trouble is that just because an investment is familiar doesn’t mean that it’s best suited for your financial goals. Sticking to what’s familiar can also leave you undiversified, which means your portfolio has higher risk than a diversified one.
DiversificationDiversification A way of spreading investment risk by by choosing a mix of investments. The idea is that some investments will do well at times when others are not.+ read full definition means choosing a mix of investments whose prices don’t always move in the same direction. For example, stocks and bonds often move in opposite directions. A mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition or ETF can also help you diversify by exposing you the stocks or bonds of competing companies in different countries or industries, though this depends on the make-up of the particular mutual fund or ETF. If you diversify, you’re less likely to lose a large portion of your investments just because one company or one part of the market isn’t doing well. Learn about four reasons to diversify.
Our Investment products section will help you get familiar with several common types of investments. The right types of investments for you will depend on many factors, such as your risk tolerance, investment needs and time horizonTime horizon The length of time that you plan to hold an investment before you sell it. This may be a brief period of time or span as long as decades, depending on your financial goals.+ read full definition.
Read the full report
If you’re interested in how leading practitioners and regulators around the world are using behavioural insights to address issues in capital marketsCapital markets Where people buy and sell investments.+ read full definition and improve outcomes for investors and market participants, read the Investor Office Report – Behavioural Insights: Key Concepts, Applications and Regulatory Considerations (OSCOSC See Ontario Securities Commission.+ read full definition Staff Notice 11-778).