If we don’t Challenge the way Things have always been we’ll never discover the greatest breakthroughs of our future
Status Quo bias simply means doing nothing i.e. avoiding active decision and the let things happen as they always have been without taking any efforts to change it, this is mainly because of the fear that it will make things worse.
When you go in a restaurant most of the people usually order their favorite food items because there is an unwarranted assumption that another choice will be inferior or won’t taste good.
Status Quo bias in investing
This intuition of doing nothing is usually not a smart way of managing your money. But this doesn’t means that the path of active trading is the right path of long term wealth creation. The solution here is rebalancing .Timely rebalancing can only be done with timely review. Long Term investors should atleast review their Investment portfolio on yearly basis. Rebalancing also means that your asset allocation is in take with your Risk profiling.
Illustration
Two friends Mr. Milind & Mr. Harshil had invested Rs.50, 000/- in XYZ fund. The first year fund gave a phenomenal return, the second year the fund was an underperformer still both stayed invested again the third year the fund was an underperformer. Mr. Milind still stayed invested as was comfortable with the investment strategy & pattern but Mr. Harshil took efforts and identified the key reasons of underperformance and also analyzed the future prospects & than took a rationale decision to shift his investments in another fund because it had good future prospects than XYZ fund.
