Behavioral Finance and Your Portfolio

26Follower Behavioral Investor Type

Whenever you find yourself on the side of the majority, it is time to pause and reflect.

—Mark Twain

Name of Behavioral Investor Type: Follower

Basic Orientation: General lack of interest in money and investing; typically desire direction when making financial decisions

Dominant Bias Type: Cognitive, relating to following behavior

Impactful Biases: Recency and Framing

Investing Style: Passive

Level of Risk Tolerance: Generally lower than average but often think risk tolerance level is higher than it actually is

A Follower behavioral investor type describes an investor who is passive and often lacks interest in and/or has little aptitude for money or investing. Furthermore, Follower investors typically do not have their own ideas about investing. Rather, they may follow the lead of their friends and colleagues, or whatever general investing fad is occurring to make their investment decisions. Often their decision-making process is without regard to a long-term plan. They sometimes trick themselves into thinking they are “smart” or talented in the investment realm when an investment decision works out which can lead to unwarranted risk-seeking behavior. Since they don't tend to have their own ideas about investing, they also may react differently when presented with the same investment proposal; that is, the way something is presented (framed) can make them think and act differently. They also may regret not being in the latest “investment ...