On the Money

Behavioral Finance by David Massart, president of Wauwatosa-based Next Generation Wealth Management Inc.

Behavioral finance has become a popular topic amongst the investment community. From the technology bubble of 2000 to the recent financial crisis, the emotions of financial decision making have taken their toll on investors.

For more than 30 years, behavioral economists have studied the patterns of investors. Their conclusion: while the efficient market theory develops a strategy for the rational investor, investors are not rational. Behavioral finance studies how people actually behave in a financial setting.

Behavioral finance recognizes that people don’t buy numbers, they buy feelings. Studies have shown that investors feel more than double the pain when their portfolio loses value, versus the joy they feel when the portfolio increases by that same amount.

Click here to read more in the latest issue of BizTimes Milwaukee.

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