Imagine you're walking down the sidewalk and find IDR100,000 lying on the ground. You'd probably be happy, right? Now imagine that you're the one who lost that IDR100,000 . The feeling of loss would likely be much stronger than the joy of finding the money, even though the amount is exactly the same.

This phenomenon also occurs in the world of investing; it is known as loss aversion, or simply put, the fear of loss. Instinctively, this stems from a basic survival instinct, where avoiding danger is far more important for survival than pursuing opportunities. However, recognizing and understanding loss aversion can be the first step for investors toward building more sustainable wealth. 

How Does Loss Aversion Affect Investment Decisions? 

Loss aversion can influence investment decisions in the following ways:

• Avoiding high-risk assets, even though they offer the potential for higher returns.
• Holding onto losing investments for too long, believing that the loss is not "real" as long as it has not been realized.
• Selling profitable investments too quickly, thereby giving up the potential for greater long-term returns.

Peter Lynch, the legendary investment manager at Fidelity Investments, once likened loss aversion to "picking flowers and watering weeds." In other words, investors tend to sell winning investments too quickly while holding onto losing ones in the hope that they will eventually recover. The problem is that these decisions are often based not on fundamentals, such as an asset's intrinsic value and future prospects, but on its purchase price as a psychological reference point. 

Why Are Investors Prone to Loss Aversion? 

When investing, losses often feel more threatening because there is no certainty about when the market will recover or how long market volatility will last. As a result, our natural response is to become defensive. We avoid risk, sell investments at a loss, or even hesitate to start investing at all. This mindset often prevents us from achieving long-term financial growth. 

Here are several strategies to help you overcome loss aversion and make more rational investment decisions: 

1. Set clear investment goals 
   • Set clear investment goals based on your investment time horizon (short, medium, or long term) so you can choose the most appropriate investment instruments. For example:

     Time Horizon	Example Goal	Explanation	Example Investment Instruments
     Short Term (< 1 year)	Emergency fund	Allocate your money to low-risk investment instruments so the funds remain readily available when needed.	Bahana Gebyar Dana Likuid Money Market Fund Batavia Dana Kas Maxima Money Market Fund
     Medium Term (1–5 years)	Buying a motor vehicle	Choose relatively stable investment instruments that generate regular returns to help achieve your financial goal.	Manulife Obligasi Unggulan Fixed Income Fund Ashmore Dana Obligasi Nusantara Fixed Income Fund Government Bonds (SBN)
     Long Term (> 5 years)	Buying a home	Consider investment instruments with higher growth potential to maximize long-term returns.	BNP Paribas SRI Kehati Equity Fund Batavia Dana Saham Equity Fund

   • By focusing on each of these goals, investors can reduce panic and avoid the tendency to "cut losses" when the market becomes volatile. 
   • You can set your investment goals using the Investment Goals feature in myBCA. For more information, click here. 
2. Use the Dollar Cost Averaging (DCA) Strategy
   • Invest a fixed amount regularly without trying to time the market. 
   • This strategy helps reduce emotional bias and encourages investment discipline. 
   • DCA also reduces the risk of mistiming, so that market fluctuations don’t have a significant impact on your overall portfolio.
   • On myBCA, you can use the recurring investment feature to automate your investments, so you never miss your monthly investment schedule. For more information, click here.
3. Review Your Investment Portfolio Regularly 
   • Loss aversion often arises when investors focus too much on short-term market movements, such as daily price fluctuations.
   • Use a longer evaluation horizon (weekly or monthly) to assess trends and the consistency of performance.
   • Regularly review and rebalance your portfolio to keep it aligned with your original investment goals. 

In conclusion, when it comes to investing, fear often feels more powerful than opportunity. However, that fear can be managed through discipline and rational decision-making. Understanding loss aversion does not mean eliminating it entirely, but rather learning not to let it control your investment decisions. After all, building wealth is not just about choosing the right investments, but also about managing your emotions and making sound investment decisions.