A damaging effect of Halo Effect on your finances

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Elon Musk is a brilliant engineer and a businessman but his followers also take his advice on cryptos.

Sports and film celebrities who are masters of their respective skills endorse insurance, investment products, and yes cryptocurrencies as well to their followers who lap them up.

Many financial influencers who may have done well in their earlier stints as entrepreneurs or business consultants are encouraging their followers to invest in different products.

If you notice in all these cases, none of these influencers have professional qualifications or certifications in the field of personal finance/investments but have gained followers for their mastery in other areas. However, many people look up to them to get advice on their finances. Why?

For two reasons:
1. Free advice (who doesn’t like it even if it can cost you a lot) and
2. Halo effect

More on the first reason later.

Let’s understand the Halo effect here. It is a human cognitive tendency to get bedazzled with only one or some features of a person, product, or company so much so that your every decision tends to get affected by those few characteristics. This is also supported by the human tendency to want quicker decisions and having a favourable characteristic hastens the decision. It is a very common behavioural bias that wrongly influences decision-making.

However, being aware of this is the first step to creating your defence against it. You must follow some rules to avoid the halo effect playing on your mind:

– Do your own research to identify the right investment opportunity, fund managers, investment process, portfolio valuation, etc. from all the available options.

or

– Consult a fee-only SEBI RIA who provides you with absolutely unbiased financial advice and also suggests the products that are the right fit for your investment objective and not just the popular products.

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Truemind Capital is a SEBI Registered Investment Management & Personal Finance Advisory platform. You can write to us at connect@truemindcapital.com or call us at 9999505324.