Behavioral finance experts Oxford Risk say many of the investment decisions retail investors in the United States and elsewhere around the world make are for emotional comfort, and it estimates that during an average year this typically costs them 3 percent in returns. However, given the increased level of market volatility during the pandemic, and that the level of emotional decisions made by investors in terms of managing their portfolios has increased dramatically, the cost of this will be more – in some cases it will be much higher.
Oxford Risk says many investors have increased their allocation to cash during these volatile times for markets, and the cost of this “reluctance” to invest is around 4 percent to 5 percent a year over the long-term. In addition, it estimates that the cost of the “Behavior Gap” — losses due to timing decisions caused by investing more money when times are good for stock markets and less when they are not
