The Psychology of Investing
This is perhaps the most important chapter in the entire knowledge base. Because most investors know what they should do — but still don't do it. The biggest enemy of a good return is not the market. It is the investor themselves.
7.1 Emotional Investing
Emotions and investing are a dangerous combination. Our brain is evolutionarily programmed for survival — not for long-term wealth building. Two emotions dominate investor behaviour: fear and greed.
The chart shows the classic pattern: the emotional investor buys when euphoria is at its peak (price at top), sells in panic at the bottom, and stands on the sidelines during the recovery. The rational investor invests periodically and holds on — and ends up at the same point as the market.
7.2 The Most Common Cognitive Biases in Investors
Loss aversion
A loss of €100 feels psychologically almost twice as painful as the joy of a gain of €100. This drives investors to take profits too early (locking in gains) but hold losing positions too long (hoping for a recovery).
Herd behaviour
Doing what the crowd does. When everyone is buying, you feel foolish for not buying. When everyone is selling, you feel panic. The crowd is however structurally wrong at the extreme moments.
Recency bias
The tendency to treat recent events as indicative of the future. After a crash you expect the market to keep falling. After years of rising you expect it to keep rising forever. Neither is correct.
Overconfidence
Most people think they are above average. More than 80% of investors think they invest better than average. That is statistically impossible.
7.3 Market Timing — The Costliest Illusion
Missing just the 10 best market days in 20 years halves your final wealth. Those 10 days are less than 0.2% of all trading days. Nobody can consistently predict when those days occur — and research shows they occur precisely during volatile periods, just after or in the middle of a crisis.
"Time in the market beats timing the market."Stock market wisdom confirmed by decades of data.
7.4 Too Many Costs — The Silent Wealth Thief
The Total Expense Ratio (TER) is the annual cost percentage of an ETF. It is automatically deducted from the price — you don't pay it separately.
A TER of 0.20% on a portfolio of €100,000 costs you €200 per year. An active fund of 1.50% costs €1,500 per year — for the same amount, with statistically lower returns.
The difference between TER 0.20% and TER 2.00% is €394,000 on a starting investment of €100,000 over 30 years. That is the compound effect of costs: even the costs you don't pay grow along with your investment.
Typical TER per ETF type:
| ETF type | Typical TER |
|---|---|
| Actively managed fund | 1,00–2,00% |
| Thematic ETF (e.g. AI, clean energy) | 0,35–0,75% |
| Broad global index (MSCI World, FTSE All-World) | 0,10–0,25% |
| S&P 500 ETF | 0,05–0,15% |
All hidden cost layers: investors focus on the TER — but there are more layers.
| Cost layer | Typical | Visible? |
|---|---|---|
| TER (ETF management costs) | 0,05–2,00% | No — hidden in price |
| Broker transaction costs | €1–€10 per order | Ja |
| Bid-ask spread | 0,02–1,00% | No — hidden |
| Wisselkoersmarge | 0,10–1,50% | Yes, in KID |
| Box 3 tax | ~2% of invested assets above exemption | Indirect |
| Behavioural costs | Unlimited | No — behavioural damage |
The last item — behavioural costs — is the largest but least visible. Every time you sell too early, enter too late, or switch strategy, you pay a cost that never appears on any invoice.
7.5 The Iron Rules of the Disciplined Investor
Rule 1: Write down your strategy before you invest
What is your goal? Which ETFs? How much per month? When do you rebalance? An investment plan written down on paper is much harder to abandon in panic than a plan that only exists in your head.
Rule 2: Automate everything you can
Automatic monthly investing removes the decision. You cannot react emotionally to a market movement if the transaction has already been processed. The best investors are the most boring.
Rule 3: Limit how often you check
Research shows that investors who check their portfolio more often trade more and achieve lower returns. Checking once a quarter is more than enough for a long-term ETF investor.
Rule 4: Don't compare yourself to others
The neighbour who makes 50% on Tesla shares also makes news when he loses 70%. Survivorship bias: you hear the winners, not the losers. Only compare yourself against your own plan and benchmark.
Rule 5: Be extra sceptical when you feel certain
The feeling of certainty — "this time is different", "this stock can't fall" — is the most dangerous feeling in investing. Extreme certainty is almost always a signal of emotional reasoning, not rational.