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The mental shortcuts that sabotage our portfolios can also sabotage our health, relationships, curiosity, and resilience.
Human beings are not wired to make optimal decisions. This lesson from behavioral finance has been pounded into my head for 30 years as a financial advisor. We gravitate toward the safe, familiar, and emotionally comfortable, even when those are not the best decisions for us.
Behavioral finance provides labels for these behaviors—status quo bias, loss aversion, confirmation bias, sunk-cost fallacy, the endowment effect. Professionally speaking, once our clients can see the bias, we can begin working around it together.
I’ve seen this from all kinds of intelligent and successful people: Brilliant engineers clinging to losing stocks because they “couldn’t take the loss.” Successful entrepreneurs holding concentrated positions because they knew their own company better than anyone else. Retirees spending 40 years saving for retirement, then feeling like they were “losing money” by spending in their retirement.
The kicker is that each of these emotional decisions hides behind a smokescreen of rationalization that seems perfectly reasonable to the decision-maker — no matter what the data may say.
Lately, I’ve realized a connection that’s changed the way I think about aging. The same mental shortcuts that sabotage our portfolios can also sabotage our health, relationships, curiosity, and resilience.
Status Quo Bias: Protecting today’s life instead of building tomorrow’s
Status quo bias is preferring to leave things as they are even when change would probably improve the outcome. I have to help clients overcome this all the time when they stay in outdated portfolios simply because change feels risky. This clinging to the familiar in the present robs them of potential gains in the future.
This also happens an astonishing amount in life, where we resign ourselves to the familiar and the routine:
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“I know what I like.”
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“We always vacation here.”
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“My friends are enough.”
The difficult part is how reasonable that sounds — why not do the things that you always have done and enjoy? Where’s the harm in that?
Turns out, it’s not great for our health. A 2024 study found that stronger status quo bias was associated with lower subjective well-being—even more than differences in income or religious affiliation. The more people defaulted to “leave things alone,” the less satisfied they tended to be with life.
That’s a remarkable finding. Just like a financial portfolio that may stall if it doesn’t change, the instinct to feel safe among the familiar may reduce our capacity to flourish.
Loss Aversion: We fear making mistakes more than we value growing
Loss aversion is our deeply ingrained tendency to feel the pain of losing something more strongly than the satisfaction of gaining something of equal value, often leading us to make overly cautious decisions. It’s one of the strongest findings in behavioral finance.
That’s led me to ask: If losses loom larger than gains in our financial lives, do personal / relational / identity-related losses also loom larger in our personal lives?
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Learning AI means risking feeling incompetent.
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Trying Pilates means risking looking awkward.
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Joining a new social group means risking rejection.
Every opportunity contains a risk of failure or loss before it offers a potential gain.
Newer research suggests that understanding loss aversion becomes even more important as we age, because changes in motivation and decision-making influence how willing we are to pursue new opportunities versus protecting what we already have.
Simply put, the older you are, the more losses you have probably experienced, so your inclination to risk something for a gain — even a potentially large gain — decreases. Maybe you are like me and see this already among your peers, people in their 50s and 60s dialing up “safe” behaviors to avoid disruption, mistakes, and setbacks.
Once again, that instinct seems perfectly reasonable. However, those instincts block us from the temporary discomfort of changes that could make us healthier in our 70s and beyond, things like meeting new people, trying new exercises, and stimulating our minds instead of retreating to our comfort zone.
The Endowment Effect: Overvaluing the life we already own
In investing, the endowment effect means we value something more simply because we already own it. This instinct is as old as the proverb, A bird in the hand is better than two in the bush.
The same thing happens with our lives: My routines, my activities, my opinions, my interests, my ambitions. Ownership itself becomes evidence of quality.
Over time, what began as preferences end up becoming rules, which then become part of our identity. Researchers at Penn State have looked at this intersection of psychological ownership and identity, observing that possessing something tightens the bond between an object and our internal self-image. Once a habit or possession weaves itself into the fabric of who we are, the prospect of letting go feels less like a simple change and more like a personal sacrifice. That makes it much harder to assess whether these things we have always done are still as valuable in our life going forward. We stop asking, “Is this still serving me?” and start defending it because changing it feels like changing ourselves.
Sunk Costs: Yesterday keeps ruling over tomorrow
“I’ve already put so much into it.” I have heard this sentence from many prospective clients who defend a terrible investment, as if past effort somehow justifies a future commitment to a losing effort.
Life might be working the exact same way. “I’ve always done things this way.” “We always go to these three restaurants.” “Technology never works for me.” “I’ve never needed a second opinion before.” “This is the house we’ve always been in.”
Experience becomes inertia. Instead of asking, “If I were starting today, would I choose this?” are we asking, “Haven’t I already invested too much to change now?”
Those are completely different questions. Only one leads forward.
Confirmation Bias: We defend our choices instead of exploring our opportunities
Financial advisors spend much of our careers trying to interrupt the process of confirmation bias because investors who stop updating their beliefs often stop making good money decisions. Even getting investors to try a new approach, even a little, is a sometimes herculean task.
Why would life be any different? Perhaps confirmation bias is even more dangerous when broadly applied as we get older.
I’ve found that once we’ve decided something is true, our brains sometimes morph into attorneys instead of scientists. We argue and defend our positions because that is more comforting than being willing to put our beliefs to the test or experiment with new experiences.
But the error part of trial and error is where much of our learning happens, and that doesn’t change as we age. A 2024 review in the British Journal of Educational Psychology showed that errors are an indispensable part of learning provided that they are paired with reflection, feedback, and a supportive environment.
So a bad meal at a new restaurant or a confusing app on our phone doesn’t mean all new restaurants or technology are bad. An awkward social experience with a new acquaintance doesn’t mean the interaction was a waste of time. On the contrary, being wrong is valuable information that helps us continue to grow.
The diversification we never talk about
Every financial advisor preaches diversification because it builds resilience. If one investment disappoints, the entire portfolio still survives. Financial researchers continue to document how behavioral biases like the ones listed above systematically reduce long-term investment outcomes. The challenge isn’t simply knowing these biases exist—it’s building systems that keep them from taking over our decisions.
I think exactly the same principle applies to aging. Why don’t we diversify our lives?
Many people have habits hard-grooved over decades. One or two social circles. A rigid way of thinking. A default generation they spend time with. It’s the equivalent of putting your retirement savings into a single stock that leaves you exposed if something changes.
My client Robert is a golfer who embodies this point. He planned his retirement around hitting the links: moving to a golf community and budgeting for annual trips to the greatest courses in the world.
I asked Robert one time about what else he wanted to spend time on other than golf.
“Golf lessons”
“OK, anything other than golf?”
“I guess I’ll have to visit grandkids and family, but I’ll definitely be jonesing to get out on the course again. Hopefully, I’ll get the grandkids’ swings into shape before they hit high school, so they don’t develop any bad habits.”
“OK, but like I said, anything other than golf?”
“I don’t understand your question, Tom.”
I am not picking on Robert and have worked with him to make his golfing dreams his daily reality. But in my years of being a financial planner, I have learned that “golfspan” is not a thing. What happens if Robert outlives his ability to swing a club or walk a course? His quality of life will shank right into the water.
Conversely, the older people I know who are objectively thriving seem to have diversified lives. Multiple friendships. Varied interests. Different sources of meaning. An ability and eagerness to interact with multiple generations. Identities not over-indexed to a career or hobby. If one part of life changes, another part is waiting. That’s resilience.
It’s also a good reason to have a personal board of directors to provide a broader perspective on the key areas of your life. Or in Robert’s case, like your own set of caddies for various life courses.
Maybe the biggest lesson behavioral finance has taught me isn’t really about money. It’s that humans naturally choose what feels familiar over what creates a better future. That’s true whether you’re choosing mutual funds or choosing how to spend the next 20 years of your life.
The goal isn’t to eliminate these biases. That’s impossible. The goal is simply to notice them before they quietly become your future. When a thought begins with, “I’ve always...” or “I know what I like...”, pause for a moment.
Remember. A well-diversified portfolio can weather uncertainty. A well-diversified life can, too.
Related: The Regret Tracker: The Most Important Financial Dashboard You’re Missing