When you’re investing, you want the right outlook to help set you up for success. Emotional and behavioral investing obstacles, like loss aversion, can prevent you from reaching your goals. But with the right investment philosophy and support from your Truist Wealth advisor, you can overcome loss aversion so you can work toward your financial goals.

Loss aversion is a cognitive bias that has been around for centuries—the tendency to feel the pain of a loss more acutely than you would the joy of a gain. In fact, world-renowned researchers in behavioral finance discovered that most people felt the pain of losing something more than they felt the joy of gaining its equivalent.^{Disclosure 1} For example, the loss of $100 feels more painful than the gain of $1,000 feels pleasurable.

Loss aversion can affect the decisions of even the most experienced investors.

• Being too conservative — Loss aversion can lead to risk aversion, the tendency to lean toward low- or no-risk scenarios. Investors who are too conservative may have portfolios that don’t yield the returns they need to reach their goals.
• Panic-based selling — When the market dips, some investors may sell in an attempt to avoid even deeper losses. In this case, loss aversion impacts the ability to weather the volatility and realize gains when the market rebounds.
• Holding on to hope — By the same token, loss aversion can keep investors from selling at a loss because they perceive it as a personal failure. Instead, they wait too long for the market to rebound even though selling the asset may be the best choice.

Most investors have at least some element of loss aversion—courtesy of our early ancestors who had so little that protecting it at all costs far outweighed the thought of risking it for more. With that type of emotional hardwiring, it’s no wonder overcoming loss aversion takes deliberate action.

It may seem like more financially secure individuals would be insulated from an elevated level of loss aversion—but data on the interconnected topic of risk tolerance indicates otherwise. In a recent survey of high-net-worth and ultra-high-net-worth individuals, a large percentage of respondents in both categories expressed having a low tolerance for investing risk despite high levels of investable assets.^{Disclosure 2}

So, what—if anything—can be done to help reduce loss aversion? Changes in perspective and methods can increase the likelihood of minimizing this hardwired investment bias. Here are five examples that may help:

1. Be realistic with your investments.
   
   Don’t overinvest yourself financially. Only invest what you can comfortably part with and ask yourself what would happen if you lost some of that investment. If you’re not comfortable with the answer, reevaluate how much you’re contributing.
2. Don’t let your heart lead.
   
   Whenever possible, take the emotion out of investing to avoid hasty, illogical decisions. Easier said than done? Your Truist Wealth advisor can show you historical data about different investment types and ensure you’re making decisions based on facts and sound technical analysis. Similarly, they can be a sounding board for any concerns you have, especially as your priorities change.
3. When it comes to investing, think long-term.
   
   Investing in securities or saving for retirement are not get-rich-quick schemes—both are long-term investment strategies. Thinking about your goals and your money on longer time horizons can help you face market dips more comfortably—and potentially give you more opportunity to compound interest.
   
   Plus, research found people were less loss averse when they made decisions based on their future selves.^{Disclosure 3} If you’re unsure about planning long-term investment strategies on your own, your Truist Wealth advisor will be there for you to understand your current situation as well as your future goals and map out a plan to help you reach them.
4. Think like an investor.
   
   Where others see loss, investors see opportunity. They’re not afraid of a little market volatility because they understand tip #2 and their investing strategies hinge on tip #3. They don’t let fear sideline them, because there’s no reward without some level of risk.
5. Be consistent with your investing.
   
   Find an investment cadence and stick to it. You should contribute only what you can afford comfortably—and at a pace you can manage. Some people use dollar-cost averaging to invest consistently each month, allowing them to purchase varying share amounts at regular intervals instead of missing out on potential gains by investing a lump sum all at once.

Past performance does not guarantee future results.

Regular investing does not ensure a profit or protect against a loss in declining markets. Dollar-cost averaging involves continuous investments in securities regardless of fluctuating price levels. Investors should consider their financial ability to continue purchases through periods of low-price levels.