As investors, we like to think we make rational decisions based on facts and data. The reality? "The way our brains are wired can make us incredibly successful in some places while working against us when it comes to investing," says Zarak Khan, Director of Behavioral Science at Edward Jones. Here are five common behavioral traps that even experienced investors fall into, and why they're so hard to avoid.
1. Following the herd (when everyone else is doing it)
When everyone at your dinner party is talking about how much money they've made on the latest hot stock or crypto, it's incredibly tempting to jump in. This "herd mentality" feels safe – if everyone else is doing it, it must be good, right? Our brains are wired to trust the crowd. But in investing, following the herd often means buying at peak prices, right before the bubble deflates. By the time something becomes the talk of every conversation, the biggest gains have usually already happened.
2. Trying to time the market
It's tempting to think you can "get out before the crash" and then "get back in at the bottom." After all, if you could just avoid the down months and catch all the up months, you'd be rich, right? The problem is that nobody, not even professional investors, can consistently predict short-term market movements. "Trying to time the market often means you miss out on the biggest gains but still incur the biggest dips," says Khan, "This in itself can discourage investors from additional participation." Investors who try to time the market often end up selling low out of fear and buying high when they feel safe – the exact opposite of successful investing.
3. Panicking when markets drop
Market downturns trigger our "fight or flight" response, which is the same instinct that helped our ancestors survive predators. When your portfolio drops 10% or 20%, your brain screams "danger!" and you want to sell and get out, just to stop the pain. This recency bias makes us overweight what just happened and assume it will continue. But here's the thing: selling during a panic means you lock in losses and miss the recovery. History shows that staying invested through downturns is usually the winning strategy.
4. Overconfidence after success
Had a few good years? It's easy to start thinking that bad times are a thing of the past, and that you've got a special talent for picking winners. This overconfidence can lead to taking bigger risks, trading more frequently, or abandoning a disciplined investment strategy. The truth is, short-term success often involves luck as much as skill. Markets are humbling—just when you think you've figured them out, they change. Staying on track and sticking to an established plan usually beats trying to outsmart the market.
5. Borrowing someone else's goals
Many investors assume the objective is self-evident: maximize returns, beat the benchmark, or keep up with your peers. "Jumping into investing without first clarifying your values and goals – and what role you want money to play in your life – can lead to decisions that are not aligned with life you want to live," says Khan. When we borrow someone else's goals as our own, every market move feels more confusing and every tradeoff becomes harder to navigate.
The takeaway
These behavioral tendencies aren't character flaws, they're human nature. The key is to recognize them when they show up. That's one reason why working with an Edward Jones financial advisor can be so valuable. We can help you spot these patterns in real-time and keep you focused on your long-term goals, even when your instincts are pulling you in a different direction. Successful investing isn't about picking the best stock or having perfect emotional control – it's about having a plan and the discipline to stick with it.