Later this April, working Minnesota residents will receive their company 401(k) retirement plan account quarterly statements. Reviewing these statements are the most engaged individual investors ever get with their company retirement plan accounts.
Reaction to the all-time high company 401(k) account balances will fall into what behavioral psychologists call Self-Attribution bias.
Self-Attribution bias is the psychological habit of attributing your successful investment outcomes to your skill as a long-term stock market investor.
When the stock market collapses again, you will then blame your stock market losses on bad luck, the economy, Congress, your company, or your least favorite neighbor.
Self-Attribution bias can harm stock market investors in two ways.
First, you will not be able to see the investment management mistakes you made and learn from those mistakes. Individual investors need to remember that being invested in a rising stock market most times is just plain good luck.
Self-Attribution bias is especially harmful in an individual company retirement plan account. The consistent individual retirement plan contributions, along with the company matching contributions, can cover up years of investment management mistakes.
Second, when stock market investors credit themselves with investment management success, they become overconfident in their ability to make timely investment management decisions during the next stock market decline.
Professional investment advisors keep written records of their investment decisions in their client accounts in order to revisit their thought process at a later date. Individual stock market investors don’t often have the luxury of a similar investment management decision process.
Break out of your Self-Attribution bias investment management cycle and take more control of your company 401(k) retirement plan account investment management decisions.
So far in 2013, you have been fully invested in a rising stock market. Don’t think that the same good fortune awaits you during the next great stock market decline.
Ric Lager
Lager & Company, Inc.
