Investing is all about making rational decisions based on facts, data, and analysis. However, investors are not always immune to biases that can cloud their judgment. Sentimental value is one such bias that can lead people to hold on to certain investments based on emotional attachment rather than sound principles. Read on to learn more about it!
What Is Sentimental Value?
Generally, the sentimental value definition refers to the emotional attachment and significance humans assign to objects based on the memories and experiences they associate with them. It is the reason why people tend to keep certain items that may have little monetary value but hold a lot of sentimental meaning.
Similarly, sentimental value can make people keep an investment despite its poor performance or unfavorable market conditions, simply because of the emotional value they attach to it.
What You Need To Know About Sentimental Value
If an investor is holding on to a stock because it reminds them of their first investment success, despite its declining performance, it’s an apt example of sentimental value bias. Another case in point is when an investor refuses to sell a property because it was passed down to them from their parents, even though it’s not generating any returns.
As you can see, recognizing the influence of sentimental value is crucial to making rational investment decisions. If not controlled, it can lead to such unwanted consequences as:
- Overvaluing investments
- Holding onto underperforming investments
- Ignoring market trends
- Making irrational decisions
- Failing to diversify the portfolio
- Lower return on investment and financial losses
Luckily, the habit of attaching sentimental value to investments can be managed by such means as:
- Setting clear investment goals
- Focusing on diversifying the portfolio
- Using objective criteria to evaluate investments
- Reviewing the investment strategy regularly
- Seeking advice from professionals, if necessary
By means of acknowledging the influence of sentimental value and taking steps to minimize its impact, investors can ensure their judgment is not clouded and make more rational decisions.
