Hidden Traps of the Mind: How Cognitive Biases Impact Your Investment Decisions | Part 2

By: Brian Watson CFP®, CDFA®, Hartley Carlson, and Emily Lusk, IACCP®

In periods of market turbulence, when volatility dominates headlines and uncertainty feels constant, investors are often driven to ask: What happens next? Should I act now? Beneath that urgency lies a more subtle force. The instinct to overweight recent market swings and gravitate toward information that reinforces existing fears can quietly take hold, shaping decisions in ways that feel rational in the moment, but often lead investors off course. These forces are not nameless and can be identified when you know what you are looking for.

2020 was an unprecedented year. Amid a global health crisis and a sharp market downturn, many investors chose to exit the market out of fear. Yet by November 2020, markets had rebounded, with the Dow surpassing 30,000 for the first time in history[1]. Even outside of extraordinary events, volatility is not uncommon. The beginning of 2025 saw sharp declines, with the S&P 500 experiencing its steepest drop since April 2020. By December 2025, however, the index had gained 16.39%[2], underscoring how quickly sentiment and performance can shift.

Periods like these illustrate the impact of recency bias – the tendency to give more importance to recent events rather than historical events or historical trends. When recent losses are fresh, they can feel both more significant and more predictive than they truly are, leading investors to assume that current trends will persist indefinitely. This can result in reactive decisions such as moving to cash after declines or hesitating to reinvest during early recoveries, rather than remaining aligned with a long-term plan.

Working with a fiduciary can help you see beyond the recent horizon. A fiduciary’s fundamental obligation is to act in your best interest, not to react to market noise, not to chase short-term trends, and not to validate whatever the last headline said. That legal and ethical commitment itself can help mitigate the effects of recency bias.

As a fiduciary, Koss Olinger helps ensure that your investment strategy is centered around your full financial picture. This includes your goals, time horizon, and actual risk tolerance, not how the markets felt last quarter. When recent events create emotional pressure to act, we can help provide context that consists of historical data, long-term performance patterns, and a calm, evidence-based perspective that recency bias tends to push out on its own.

Perhaps most importantly, a fiduciary creates accountability. Having a defined investment policy statement, and our professional commitment to honoring it, can greatly reduce the chance of making impulsive decisions driven by what just happened. Your strategy becomes a guardrail, not just a document.

By focusing on evidence, planning, and long-term strategy, investors can avoid the costly mistakes that often accompany short-term thinking.

[1] Liz Frazier, “The Coronavirus Crash of 2020, and the Investing Lesson It Taught Us,” Forbes, February 11, 2021, https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the- investing-lesson-it-taught-us/.

[2] Annual Market Review 2025, Broadridge Advisor Solutions, © 2026 Broadridge Financial Services, Inc. S&P 500 index performance reflects price return only, measured from the index close on January 1, 2025 through the index close on December 31, 2025; figure does not include reinvested dividends.

Advisory Services offered through Koss Olinger Consulting, LLC. an SEC Registered Investment Advisor. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Securities and Exchange Commission. This is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction. References to market index milestones in this article should be understood in the context of longer-term market volatility, not as evidence that markets move only upward — indexes can and do experience significant drawdowns over both short-term and extended periods. There can be no assurance that a portfolio will be profitable. Hyperlinks are for your convenience and forward you to third parties’ websites, which generally are recognized by their top-level domain name. Any links to other publications or services do not constitute an endorsement, authorization, sponsorship by or affiliation with Koss Olinger Consulting, LLC with respect to any linked site or its sponsor. Such information is provided or maintained by third parties over whom Koss Olinger Consulting, LLC exercise no control. Koss Olinger Consulting, LLC expressly disclaims any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

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