When most people think about investing, they envision balance sheets, index charts, and the relentless pursuit of return on investment. Beyond the numbers and graphs lies a deeply human story. 

At its heart, investing is not simply a financial act, it is a behavioural one. It is shaped by our emotions, beliefs, habits, and often by our fears.

The psychology of investing is a field that explores how psychological biases influence financial decisions and has become increasingly relevant in today’s uncertain economic environment. In theory, we assume investors behave rationally. 

In practice, that assumption rarely holds true. Markets may move on fundamentals, but individuals move based on feelings.

A poignant example of this was during the 2020 COVID-19 market crash. While valuations screamed “buy,” many investors were paralysed by fear. According to a research by Morningstar, investors pulled over USD 326 billion from equity mutual funds in March 2020 alone, the largest monthly outflow in history at the time. Many locked in losses that were later erased by the fastest market recovery in decades. 

Conversely, investors who had clearly defined Investment Policy Statements (IPS) and the psychological discipline to adhere to them, stayed the course and were rewarded by the subsequent rebound. The difference was not market knowledge, but mindset.

Psychological biases manifest in subtle yet powerful ways. Loss aversion, a key principle in behavioural economics, suggests that losing feels roughly twice as bad as winning feels good (Kahneman & Tversky, 1979). This fear leads many to exit investments prematurely or avoid the markets altogether. 

Recency bias causes individuals to overweight the most recent market events, while herding behaviour sees them making decisions based on peer actions rather than sound strategy—often amplifying bubbles and crashes.

Inertia, or the failure to take any action at all, is one of the most common and costly pitfalls in personal finance. Research from the National Bureau of Economic Research shows that over 30% of employees never enrol in employer-sponsored retirement plans, even when incentives are provided. 

This is not a matter of intelligence, but of wiring. The human brain is not naturally conditioned for long-term thinking in volatile environments. Yet investing, by its very nature, demands it.

At Jubilee Asset Management, we have found that bridging the gap between financial strategy and emotional discipline is central to client success. One of the most effective tools is investor education. 

Through webinars, regular market briefings, newsletters, and personalised advisory sessions, we empower investors to shift from reactive decisions to reflective ones.

We also see the value of behavioural coaching, where advisors act as a kind of financial psychologist, guiding clients through emotional market cycles and helping them resist impulsive decisions. 

A clearly articulated Investment Policy Statement (IPS) offers a psychological anchor, reminding investors of their long-term objectives even in the midst of short-term turbulence. Scenario planning, too, is invaluable, helping clients visualise various outcomes and build mental resilience in the face of volatility.

Communication plays a pivotal role in behaviour management. Subtle nudges such as encouraging clients to “zoom out” during downturns can make all the difference. In addition, studies from the University of Chicago Booth School of Business suggest that simple nudges can increase saving rates by up to 20%, demonstrating the power of behavioural design. 

Gamified learning tools are also proving useful in engaging younger or time-constrained investors, making financial literacy more accessible and even enjoyable.

Gender differences in investing further illustrate how behavioural insights can improve outcomes. A Fidelity Investments study in 2021 found that women outperformed men by 0.4% annually over a 10-year period, largely due to a more disciplined, goal-oriented approach and lower trading frequency. Men, while often demonstrating higher risk tolerance, are statistically more susceptible to overconfidence and frequent trading behaviours associated with lower net returns.

In the post-COVID world, the mindset of investors has evolved. The focus is no longer purely on chasing returns. Instead, terms such as “resilience,” “liquidity,” and “downside protection” are now central to investment conversations. 

According to a 2023 BlackRock Global Investor Pulse survey, over 62% of investors globally now prioritise capital preservation over high returns, signalling a shift towards more cautious and intentional investing. 

We are seeing heightened interest in alternative asset classes such as Real Estate Investment Trusts (REITs), private credit, and infrastructure. Investors today are more curious, more cautious and more strategic. Our responsibility as asset managers is to meet them at this new point of awareness with tailored, forward-thinking solutions.

At the end of the day, investing is about much more than financial gain. It is about identity, discipline, and delayed gratification. The most successful investors I have encountered are not those who timed the market perfectly, but those who had the patience to ride out storms, the humility to keep learning and the confidence to seek advice when needed.

As asset managers, our role is no longer just to manage money. It is to support and guide the investor journey, to help people not only grow wealth, but also understand the why behind their financial choices. Because how we think about money determines what we do with it. And what we do with it determines everything.

The writer, Mercy Mwelu, is the General Manager; Business Development at Jubilee Asset Management Limited.