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Definition of Home Bias Home Bias is the tendency for investors to heavily favor investments from their own country while underinvesting in international markets. In plain English: we like what’s familiar. We buy U.S. stocks, U.S. bonds, U.S. real estate… and quietly ignore the rest of the world—even though the global economy is much bigger than just us. From a comfort standpoint, that makes sense. From a wealth-building standpoint, it can quietly hold you back.

Definition of Recency Bias Recency Bias is the tendency to give more weight to the most recent information we’ve seen—while ignoring long-term data, history, and trends. In simple terms: what just happened feels more important than what usually happens. And in money decisions, that can get expensive fast.

Definition of Representativeness Representativeness is a mental shortcut (bias) where we assume something belongs to a certain category because it looks like a typical example—even when the actual data doesn’t support that conclusion. In plain English: “This reminds me of that… so it must be that.” Our brains love patterns. The problem? Sometimes we see patterns that aren’t really there—especially with money.

Definition of Availability Heuristic The availability heuristic is a mental shortcut where we judge how likely something is based on how easily examples come to mind—rather than on actual data or probabilities. In plain English: If you can remember it easily, your brain thinks it happens all the time. And in money decisions, that can get expensive.

What Prospect Theory Means (Plain English Version) Prospect Theory explains why people make decisions based on how choices are framed—especially when facing gains and losses. In short: - We hate losing more than we like winning. - We’re risk-averse with gains but weirdly risk-seeking with losses. - Our emotions often override the math.

Definition of Framing Framing is the way information is presented in order to influence how we perceive value and make financial decisions. The facts don’t change—only how those facts are described. But our brain reacts differently depending on the “frame.”

Definition of Confirmation Bias Confirmation bias is our natural tendency to search for, believe, and remember information that supports what we already think is true—while ignoring anything that challenges our opinion. When it shows up in money decisions, it can push us into bad investments, risky purchases, or just plain stubborn financial mistakes because we convince ourselves we’re already right.

A Simple Definition of Anchoring A behavioral bias where we fixate on an initial price, value, or piece of information and use it to make ongoing decisions—often leading to bad financial choices.

Definition of Overconfidence Overconfidence (in finance) is a behavioral bias where investors believe they have better knowledge, sharper instincts, or more accurate predictions than they actually do. This confidence leads them to take bigger risks, ignore danger signs, and make decisions based on gut feelings instead of solid strategy.

Definition of Herding Herding is when investors blindly follow what everyone else is doing instead of making decisions based on actual research, fundamentals, or strategy. It’s jumping into the market simply because “everybody’s buying” or dumping your investments just because “everyone is selling.”

Definition of Loss Aversion Loss aversion describes our natural tendency to hate losing money more than we enjoy gaining money. In fact, most people feel the pain of a loss about twice as strongly as the joy of a gain. That emotional imbalance leads many folks to make defensive, fearful, or flat-out irrational money decisions.

Definition of Behavioral Finance Behavioral finance is the study of how our emotions, habits, and quirks influence our financial decisions. In a perfect world, people would invest, save, and spend based on facts and logic. But we don’t—we’re human. We tend to follow the crowd, panic when markets dip, overspend when we’re stressed, and cling to bad investments because we “feel” they’ll bounce back.

Definition of Random Walk Theory Random Walk Theory says that stock prices move in random, unpredictable ways because all available information is already baked into the price. In other words, the market doesn’t care about your predictions, your gut feelings, or your uncle Joe’s “can’t-miss stock tips.” Prices just… wander.

Definition of Efficient Market Hypothesis (EMH) The Efficient Market Hypothesis (EMH) says this: All publicly available information is already baked into current stock prices — instantly. In other words, you can’t consistently “out-smart” the market by finding hidden gems, secret tips, or under-the-radar opportunities… because the market has already priced those in. Like, immediately. According to EMH, the only way to beat the market is by taking more risk — not by being s

Definition of Modern Portfolio Theory (MPT) Modern Portfolio Theory is the idea that you can improve your investment results not by picking perfect individual stocks, but by building a blend of different investments that work well together. The goal? Maximize your return while minimizing your risk. In other words: Don’t bet the farm on one horse. Build a team where each player brings something different to the field.

What Is Asset Allocation? Asset allocation is the strategy of dividing your investments across different “buckets” — typically stocks, bonds, and cash — based on your goals, your time horizon, and how much risk you can stomach without losing sleep or stress-eating Chips Ahoy at midnight. Think of it like building a balanced meal. Stocks = protein Bonds = veggies Cash = carbs

What Is Rebalancing? Rebalancing is the periodic process of adjusting your investment portfolio back to its original target mix. In plain English: the market shifts, your allocations drift, and you move things around to get everything back where it’s supposed to be. If your plan says 70% stocks and 30% bonds, but stocks had a monster year and now you’re sitting at 82/18, rebalancing is the reset button.

Definition of Dollar Cost Averaging Dollar Cost Averaging (DCA) is an investing strategy where you invest a fixed amount of money at regular intervals—say, every week or every month—regardless of whether the market is up or down. Over time, this approach smooths out your purchase price and reduces the risk of buying everything at the market’s peak.

Definition of Buy and Hold Buy and Hold is a long-term investment strategy where an investor purchases assets—typically stocks, ETFs, or index funds—and holds them for an extended period, regardless of market fluctuations. The idea is simple: time in the market beats timing the market. Instead of jumping in and out based on daily trends or short-term news, the buy-and-hold investor focuses on the long-term growth of their investments.

Definition of Momentum Investing Momentum investing is an investment strategy where investors buy assets that have shown strong recent performance and sell those that have shown weak performance. It’s based on the idea that rising stocks often keep rising for a time, and falling stocks often keep falling, because of market psychology and herd behavior.