Ever feel like you don’t have the headspace to make big decisions? You’re not alone. It’s thought that the average adult makes about 35,000 decisions a day. So to keep up, our brains use short cuts. That’s why most of us don’t make financial decisions based on logic. But don’t worry, it’s perfectly human.

Let’s be honest – we don’t sit around with a calculator, running scenarios before each spending or investment move. Instead, emotions, habits, and even our friends' opinions quietly steer our choices. This is exactly what behavioral finance tries to understand.

What is behavioral finance (and why does it matter to you)?

Behavioral finance explores how real people make money decisions. It acknowledges that we are often influenced by psychological biases, fear, overconfidence, and social pressure, often without even realising it.

These behaviours can explain why investment markets go through wild swings, why people sell their investments in a panic, or why they hold on to a losing fund just a little too long.

Here are some common psychological drivers that influence our financial decisions – along with practical tips to help manage them.

Loss aversion

We hate losing money more than we enjoy gaining it. That’s why some people switch out of growth funds and into conservative ones after a downturn – even if history shows markets typically bounce back.

Real-world tip: Instead of reacting emotionally to short-term losses, ask yourself: "Is my investment strategy still aligned with my long-term goals?" If it is, it may make sense to stay the course.

Herding

When markets fall, we often see people make moves based on what everyone else is doing. But following the crowd isn’t always the safest path.

Real-world tip: Just because your friend switched investment funds doesn’t mean you should. Talk to an adviser and focus instead on what suits your own situation best.

Overconfidence

Some investors believe they can 'pick winners' or time the market perfectly. In truth, even the professionals don’t get it right every time.

Real-world tip: Consider a diversified investment approach which can help to spread your risk rather than trying to predict the next big thing.

Mental accounting

We treat money differently depending on where it comes from. For example, you might think of your KiwiSaver balance as untouchable but dip into your savings far too easily.

Real-world tip: It’s all your money. Keep the big picture in mind and think about how every dollar contributes to your financial goals.

Social influence

Investors can act based on what others say or do, even when the facts aren’t clear. Social media and news hype can fuel emotional decisions.

Real-world tip: Wait at least 24 hours before making a major change to your investments. Reassess after the emotion subsides and ideally talk to a financial adviser, who will take your financial situation and goals into account.

Why this matters for your managed funds or KiwiSaver account

Your KiwiSaver account isn’t just like another bank account. It could be your first home deposit, your retirement lifestyle, or your peace of mind. A managed funds investment can grow your wealth over time, while still giving you access to your money if you need it. The success of both of these depends not only on market performance – but also the decisions you make along the way.

Switching funds during a downturn can lock in your losses, while waiting to invest until markets feels safe, can mean missing the strongest growth periods.

How to beat the biases (and be a smarter investor)

• Stick to your goals: Long-term strategies usually win over emotional reactions.

• Review, don’t react: Reassess your fund regularly with an adviser.

• Diversify: Don’t put all your eggs in one basket.

• Stay invested: Time in the market beats timing the market.

• Ask for help: You don’t need to know everything – just start the conversation.

Final thoughts

Markets will always move. Headlines will always shout. But you don’t need to ride an emotional roller coaster. By understanding your own behavioural biases, you can make calmer, clearer decisions that put you on the path to long-term financial wellbeing.

At Fisher Funds, we’re here to help everyday Kiwis build confident futures – with advice grounded in both expertise and empathy.

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