So says the data. According to the “Mind the Gap 2024” report by Morningstar, the average investor earns roughly one percentage point less per year than the very funds they invest in. Not because the funds perform poorly, but because investors buy and sell at the wrong moments.

What drives this problem? The answer lies in cognitive biases: mental shortcuts the brain uses to make quick decisions which, when applied to investing, tend to produce systematically poor outcomes. The Spanish National Securities and Exchange Commission (CNMV) itself includes them in its “Economic Psychology Guide for Investors” and warns of their impact on the financial decisions of Spanish savers.

In this article, we’ll explain the most dangerous cognitive biases for investment portfolios.

Loss aversion: the costliest bias

The fear of losing is real—so real that it often outweighs the possibility of gaining something of equal value. “When investing, it may happen that, in order to avoid realizing losses, an investor holds onto an investment with little chance of recovery and ultimately loses the entire investment,” explain experts at the CNMV.

Applied to investing, it produces a devastating outcome: investors sell during market downturns (out of fear of further losses) and remain out of the market just as the recovery begins. In many cases, investors do not fail because they chose the wrong funds, but because they exit at the worst possible moments and re-enter too late during the good ones.

Over the long term, this bias can intensify and evolve into what is known as the “myopic loss aversion” effect. It consists of obsessing over reviewing the portfolio daily and overreacting to news and events that occur in the short term.
Myopia causes investors to lose their perspective on their investment, since the more frequently they look, the more likely they are to see a loss and act on it.

Confirmation bias: we only hear what we want to hear

The habit of turning to sources of information that confirm our own views also extends to finance, except here it can be far more dangerous for our portfolios than in areas like sports or politics.

It’s simple: once we make an investment decision, the brain starts filtering information. We look for news that confirms we were right, ignore anything suggesting otherwise, and dismiss those who disagree with us.

In practice, this bias is easily reinforced by social media and ‘finfluencers’—a phenomenon that the CNMV itself addressed in its 2026 guide “From Likes to Investing.” Following only the people who validate our investment thesis is one of the most effective ways to destroy a portfolio.

Herd effect: doing what everyone else does

Let’s be honest: at some point in our lives we have all been influenced by the opinion of the group. When we were children, we sometimes went along with mischief we weren’t fully convinced about, simply because our friends were. Later in life, we may have done the same with trends that didn’t really suit us. Well, investing is no exception to this “peer pressure” effect.

When markets fall and everyone is selling, the pressure to do the same can feel almost irresistible. And when everyone is buying a particular asset class, staying on the sidelines can feel like a mistake. The herd effect (or herd behavior) leads investors to act against their own analysis simply because others are doing the same.

The fear of missing out on a historic opportunity pushes individual investors to enter the market just when prices already reflect everyone else’s optimism. The problem is that, without a personal strategy, there is no clear basis for knowing when to exit. And when enthusiasm fades and a correction arrives, those who entered on impulse are often the last to leave—and the ones who lose the most. This is the real issue: the herd tends to arrive late to trends, buying when prices are already high and selling after they’ve fallen.

Others to consider: anchoring bias, recency bias, and overconfidence…

Anchoring bias: “I won’t sell until I recover what I paid.” It is one of the most repeated phrases among investors and one of the costliest. Anchoring bias makes us fixate on a reference point—such as the purchase price or a stock’s all-time high—and make decisions based on that figure instead of evaluating the current market reality.

Overconfidence: believing you know more than you actually do is one of the most common and silent biases. Believing you know more than you actually do is one of the most common and silent biases. The overconfident investor doesn’t realize they are taking on more risk than they think; they are convinced their analysis is correct, their instincts are reliable, and that things will unfold as expected. The result is a more concentrated portfolio, more frequent trading, and a perception of risk that does not match reality. Losses, when they come, are usually greater than expected precisely because they were never seriously considered.

Recency bias: after a sharp stock market drop, the investor overestimates the likelihood of another and flees. Likewise, after an exceptional year in some asset class, they assume it will continue to rise and concentrate their portfolio there. In other words, the brain gives more weight to what has just happened than to long-term historical evidence, leading us to assume that recent market behavior will persist in the future. As a result, decisions are often made at the worst possible time: buying high and selling low.

How to protect one’s portfolio

Knowing about biases is not enough to avoid them: awareness alone does not switch off emotional decision-making mechanisms. But it does help create safeguards.

Some practical measures include: setting up automatic periodic contributions instead of deciding each time when and how much to invest; reviewing your portfolio periodically rather than daily; and writing down in advance your rules for how you will act during market declines, before emotions take over.

However, one of the most effective safeguards is having a financial advisor who acts as a behavioral counterweight, helping prevent impulsive decisions.

Mapfre has a network of financial experts who can help you build and maintain an investment strategy tailored to your profile, your time horizon, and, above all, your own behavioral biases. Because in investing, choosing well matters just as much as not undoing it afterward.