![]() He’s a director of fixed income strategy for the Schwab Center for Financial Research. I’m going to speak to Jeff about what’s called the “home bias.” This is the tendency for investors to overly prefer the stocks of companies in their home country.Īfter Jeff, I’ll be speaking with Cooper Howard. He appears frequently on CNBC, Bloomberg TV, and CNN and is often quoted in The Wall Street Journal, Barron’s, and the Financial Times. He analyzes and discusses international markets, trends, and events to help investors understand their significance and financial implications. Jeff is a senior vice president and chief global investment strategist at Schwab. On this episode, we’re going in a different direction.įirst, I’m going to speak with Jeffrey Kleintop. Our episodes on how to invest in your 401(k) plan and how to handle employee equity compensation are good examples of this phenomenon. We’ve covered the importance of not becoming too dependent on one stock in other episodes. Similar behavior has been observed in China, Finland, and Sweden. Like so many biases we cover on the show, this isn’t solely a U.S. Back in the days when the telephone industry was far more fragmented than it is today, one study found that residents in 49 out of the 50 states held more shares in the telephone company closest to them than in telephone companies further away. The classic example involves 401(k) plan participants investing too much of their accounts into the stocks of their employers. Some of the oldest studies on this topic found that investors tend to overly concentrate their stock portfolios in companies with which they have some familiarity. It’s no surprise, then, that we prefer the familiar when it comes to building our investment portfolios as well.īut just like in those examples, there are consequences to that decision. That’s why cross-training is so effective. We expend all that energy and only gain a fraction as much strength or stamina as we did at first. If we do that, though, eventually our bodies adapt, and the benefits decrease. ![]() When it comes to exercise, we may prefer doing a certain exercise repeatedly. That’s fine, of course, but it prevents us from trying other menu items we might like even better. We might have a favorite dish we automatically order every time we go to a certain restaurant. Our reliance on the familiar and the subtle costs associated with it shows up everywhere. It’s a show about financial decision-making and the cognitive and emotional biases that can get in our way. I’m Mark Riepe, and this is Financial Decoder-an original podcast from Charles Schwab. It can also, at times, lead to a worse choice. ![]() In other words, our preference for the familiar can also be driven not only by our personal experience, but what we’ve heard. The study we mentioned earlier went a step further and discovered patients will ask for a name brand medicine that they’ve heard of-even if they’ve never taken it and a less-expensive generic is available. However, sticking with the familiar has a downside. Like many heuristics we’ve talked about before, there’s a lot to be said for thinking this way.Īfter all, if a strategy has worked in the past, it makes sense to not overanalyze and instead default to the tried and true method if you confront a similar situation in the future. This tendency to stick with what we know has a name: It’s called the familiarity heuristic. If they have an upset stomach today, and in the past a certain antacid has worked, they’ll take that same familiar antacid. How do you decide what to buy?Īccording to one study, 1 people tend to ask for medicine they’re familiar with. You go to the drugstore looking for something that will help. You drag yourself out of bed, rummage through the shelf where you keep over-the-counter medicines, and see that nothing is remotely close to what you need. You go back to bed for an extra hour hoping that a little extra sleep will do the trick.īut an hour later you’re still not feeling better. MARK RIEPE: Imagine this: You wake up in the morning and you don’t feel well. Wealth and Investment Management Solutions. ![]()
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