The theme this week on the Retirement Quick Tips Podcast is: 5 Behaviors of Emotional Investors That Lead To Ruin

Today, I’m talking about confirmation bias.

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that affirms one's prior beliefs or hypotheses. We are all guilty of this and this particular bias in how we filter information is also part of what’s ripping us apart as a country right now. If you are conservative and can’t bear to watch anything on CNN or if you’re liberal and hate Fox News, you’re guilty of confirmation bias.

Social media actually makes this much worse, making it harder for us to see alternative viewpoints, because the algorithms serve us up with news and information that it thinks we’ll like and click on.

When you fall victim to confirmation bias with your finances, you only see the intersection of the facts or data that already confirm your bias. It’s like making a decision with blinders on. You ignore what doesn’t already fit into your narrative, keeping you closed off to all the facts, and often we miss really important facts that should be weighed when making a decision. 

For example, let’s say you love tech stocks. You love technology companies so much that they make up your entire retirement portfolio. Instead of objectively looking at that situation and realizing what’s inherently wrong with owning companies from one sector, all you seek out online articles and research that confirm that technology will only go up from here. Or 3 additional tech stocks you need to add to your portfolio this year. 

By not expanding your research and searching for reasons to NOT own tech stocks, all you’re doing is digging yourself deeper and deeper into the hole. 

Succumbing to confirmation bias only serves to further entrench us in our skewed and bias beliefs. And when we don’t make a decision with all relevant information, we’re doing ourselves a major disservice. 

So here’s my challenge to you today. Research a topic from the opposite point of view from your own. Try to pick a topic where you’re already entrenched in your beliefs. Bonus points if the topic is about money. Research it from the opposite point of view, like why not to buy tech stocks. Spend 15-20 minutes researching the topic from the other viewpoint, looking for strong arguments in favor of that viewpoint. Pretend that you need to convince someone else to believe this point of view and research it like you were preparing for a debate. Practicing open-mindedness is uncomfortable, but building this skill is incredibly valuable in all aspects of life in helping you make well-informed and more well-rounded decisions, not just with your finances, but with everything else as well. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance