Goal-based investing helps mitigate behavioural biases
Behavioural finance is clear about investor biases and the resultant suboptimal financial outcomes. At least three methods help mitigate behavioural biases when investing: education, investment process and goal-based investing.
Lack of education is a cognitive bias that, unlike emotional biases, is easy to mitigate by making investors more self-aware. By understanding how to control for behavioural influences, and the degree of control investors have over cognitive and emotional responses, investment advisers work with clients to achieve rational investment outcomes.