The Cost of Emotions in Investing – And Why at arvy We’re on This Journey Together
June 23, 2025
13 min read
Master Your Emotions When Investing
The most expensive fee in investing doesn't appear on any statement. It's called you. Studies show the average investor loses 1.5% in returns per year — not to fees, not to taxes, not to bad luck. To their own emotions. Here's the mechanics behind it, the five most expensive mistakes — and the five defence mechanisms that actually work.
"The greatest risk in investing isn't the next crash. It's your reaction to it."
Imagine learning after 30 years of saving that you have over CHF 100'000 less wealth than the calm investor next door who ran exactly the same strategy. You didn't pay in less. You didn't invest in worse products. You didn't pay more fees. You simply sold and bought at the wrong moments — driven by fear, FOMO, panic, euphoria. That's the behaviour gap. And for most Swiss investors, it's the single biggest return destroyer of their entire investing life.
The good news: the behaviour gap isn't a character flaw. It's a consequence of how our brains work — and that's exactly why it can be largely eliminated with the right structures. This article shows you how.
1.5%
Average annual return loss from emotional decisions (Morningstar)
5
The most expensive emotional mistakes — all avoidable with structure
~12×
Bear markets since 1950 — every single one followed by a new all-time high
Contents
- The invisible fee: 1.5% per year — from you to you
- Why your brain works against you
- The 5 most expensive emotional mistakes — with price tags
- When strategy and behaviour collide
- 5 defence mechanisms that actually work
- How arvy structurally fights the behaviour gap
- The reassuring perspective: 12 bear markets, 12 new highs
- Frequently asked questions
01The invisible fee: 1.5% per year — from you to you
Every year, Morningstar publishes a study called "Mind the Gap". It compares two numbers: the return a fund generates over a period (fund return), and the return the average investor in that fund actually achieves (investor return). The difference is the behaviour gap. It varies year to year, but consistently sits around 1.5 percentage points per year.
Vanguard reaches almost identical conclusions in its well-known "Advisor's Alpha" study — the value of a good advisor (or a disciplined structure) is estimated at around 3% per year, of which roughly half comes from pure "behavioural coaching." The even more dramatic numbers from Dalbar QAIB (often 3% and more) are methodologically contested — but even the most conservative, scientifically robust figure lands at this 1.5%.
1.5% per year sounds small. Over 30 years on a savings plan, it's anything but small.
| Scenario (CHF 500/month × 30 years) | Net return | Final capital | Difference |
|---|---|---|---|
| Disciplined investor | 6.0% | CHF 502'000 | — |
| With 1.5% behaviour gap (Morningstar) | 4.5% | CHF 380'000 | −CHF 122'000 |
| With 3.0% behaviour gap (Dalbar estimate) | 3.0% | CHF 290'000 | −CHF 212'000 |
Total contributions: CHF 180'000. Gross return 6% p.a. (historical average of broadly diversified equity portfolios). Illustrative.
What 1.5% behaviour gap costs
Those aren't fees. Those aren't taxes. That's not bad luck either. That's the price of your emotions — caused by panic selling in crashes, FOMO buying in booms, strategy switches at the wrong moment, or simply waiting too long in cash. Over 30 years on CHF 500/month: CHF 122'000 less final wealth.
02Why your brain works against you
Important clarification: reacting emotionally to falling prices is not a character flaw. It's evolution. Your brain has been trained over hundreds of thousands of years to avoid losses — because losses on the savannah meant death. On the stock market, they mean a temporary number on a screen. But your brainstem doesn't know that. It switches to fight-or-flight — and the typical answer is: sell.
Three psychological mechanisms explain most emotionally driven investment mistakes. Knowing them lets you at least name them — when you feel them:
Loss aversion
Daniel Kahneman and Amos Tversky showed in their Nobel-Prize-winning research: a CHF 10'000 loss hurts about twice as much as a CHF 10'000 gain feels good. This asymmetry is hard-wired. It's the reason so many investors sell in a crash — not to save money, but to stop the pain. Rationally, it's exactly the wrong decision. To your brainstem, it's the only "logical" one.
Recency bias
What's happening right now feels like it will continue forever. Crash? "The market will never recover." Rally? "It can only keep going up." Both wrong, both expensive. Recency bias is why investors systematically buy too late (when the rally is almost over) and sell too late (when the pain has become unbearable) — structurally the worst possible combination.
Herd mentality
When everyone is selling, you feel foolish for holding. When everyone is buying, you feel foolish for staying out. The herd is evolutionarily a protection mechanism — those running with the group were less likely to be eaten by the sabre-toothed tiger. On the stock market, the herd is almost always wrong, especially at turning points. The biggest investor mistakes of all time were herd mistakes: tulip mania, dotcom bubble, US housing 2008, crypto hypes.
For the economic context of the three layers of investment costs (visible, hidden, invisible — with the behaviour gap as the largest of the invisibles), see the pillar article The True Cost of Investing.
03The 5 most expensive emotional mistakes — with price tags
Theory is one thing. Concrete mistakes in concrete moments are another. Here are the five emotional mistakes that cost the most money in practice — from real investors, in real market phases, with real consequences. The price tags refer to an illustrative CHF 200'000 position over 20 years and are meant to convey orders of magnitude.
PRICE: CHF 60'000–100'000
Mistake 1 — Panic selling in a crash
March 2020. COVID. The market drops 34% in 23 days. Your CHF 200'000 portfolio is suddenly CHF 132'000. You sell. You want to "wait until things settle down." Five months later, the market is back to pre-crisis levels. Twelve months later, 20% higher. But you're still sitting in cash — because re-entering "doesn't feel right yet."
This isn't hypothetical. It's the typical experience of hundreds of thousands of Swiss investors in every major crash of the last 50 years. Anyone who panic-sold in 2008/2009 didn't just realise the drawdown — they also missed the recovery. Over 20 years on a CHF 200'000 position, that easily creates a CHF 60'000 to CHF 100'000 difference.
PRICE: CHF 100'000+ over 20 years
Mistake 2 — Market timing: waiting for the "right moment"
"The market is too high right now." "I'll wait for a pullback." "After the elections." "After the rate decision." People have been saying this for decades — and most miss the best days of the market while waiting.
A famous JP Morgan analysis shows: anyone who missed the 10 best trading days between 2003 and 2022 lost roughly half the total return. 10 days out of 5'000. And the tricky part: the best days almost always come directly after the worst — if you're in cash (because you panic-sold), you miss both. Over 20 years on a CHF 200'000 position: CHF 100'000 or more lost.
PRICE: CHF 5'000–10'000 per year of waiting
Mistake 3 — Sitting in cash too long
You inherited CHF 100'000. Or capitalised your 3a. Or took your pension fund as a lump sum. The money sits in a savings account "until you decide." Weeks turn into months. Months turn into years.
CHF 100'000 in savings at 0.5% interest and 1.5% inflation: CHF 1'000 real loss per year. Invested at 6%: CHF 6'000 growth per year. Difference: CHF 7'000 for every year you wait. Three years of waiting: roughly CHF 21'000 in missed growth.
The full mathematics behind it — and why every day of waiting becomes exponentially more expensive — in The True Cost of Waiting.
PRICE: 2–4% underperformance p.a.
Mistake 4 — Performance chasing: following the trend
Crypto rises 300%. AI stocks double. Your neighbour brags about Nvidia gains. You restructure your portfolio, buy at the peak. Six months later: −40%. Then you switch again, because "this time it's different."
The data is clear: funds with the highest inflows (the ones everyone is buying) underperform the market over the following 3 years almost always. You buy what's popular — not what works long-term. Over a full market cycle, performance chasing typically costs 2–4% underperformance per year. That makes the behaviour gap bigger, not smaller.
PRICE: hard to quantify — very real
Mistake 5 — Checking your portfolio too often
Sounds harmless. It isn't. Studies show: the more often investors check their portfolio, the worse they perform. Daily checkers see red numbers about 46% of the time. Quarterly checkers: only about 25% of quarters. Annual checkers: only about 27% of years.
Frequent checking amplifies loss aversion. You feel red days twice as strongly as green ones — and react accordingly. The result: more emotional reactions, more unnecessary trades, worse returns. The simplest lever on the entire list: push notifications off, app off the home screen, check once per quarter. Immediately effective, costs nothing.
04When strategy and behaviour collide
Here's the key insight that makes the behaviour gap especially expensive: the best strategies are often exactly the ones that are psychologically hardest to hold. Quality investing is the most prominent example — a strategy that statistically works but has phases of underperformance during which it feels like it doesn't work.
The average quality investor experiences phases of 2–3 years where their strategy lags the market. In those phases, many decide to "change something" — and switch to whichever strategy ran best in the past phase. Exactly when the switch is most expensive.
We've worked through this mechanism in depth in the tortoise article: The Tortoise Problem: Why Quality Wins — When You Stay With It. The two articles are complementary — the tortoise explains what you have to hold, this one explains how you manage it.
The consequence: anyone choosing a strategy that never has phases of underperformance doesn't have a strategy — they just have market beta with higher fees. Anyone choosing a real strategy must be structurally prepared to survive the emotional low points. That's the core of this article.
055 defence mechanisms that actually work
Enough diagnosis. Now to therapy. These five mechanisms aren't "try to be more disciplined" — discipline is finite, it fails under stress. These mechanisms are structural: they work even when your brainstem wants to take over. That's exactly the difference between wish and tool.
1Automate — what runs cannot be emotionally stopped
By far the most important lever. Set up a monthly standing order. From your salary account, automatic, the day after payday. What runs automatically keeps running even when you're in a bad mood, or when headlines are spreading panic. Manual "I'll just do it myself this month" is the most common source of inconsistency. Automation eliminates it.
2Look less often — quarterly is enough
Delete the brokerage app from your home screen. Turn off push notifications. Set a fixed appointment: every first Monday of the quarter, 10 minutes portfolio check, then close it. That's all. If you resist, trust us: your performance will improve. Guaranteed. This is one of the best-confirmed results of behavioural research.
3Don't treat news as investment advice
Headlines are built to generate clicks — not to help you earn returns. "Crash imminent!" has appeared every single year since 2010. Anyone who reacted to headlines missed 15 years of market. Read financial news as information, not as a call to action. Daily news is almost never action-relevant for a long-term investor.
4Write your rules in advance — and read them when nervous
Write down today, in a calm moment, three sentences: "I don't sell at −20%." "I don't buy on hype." "I hold my portfolio for at least 10 years." Save them in your phone. Read them the next time you feel the urge to change your portfolio. You'll be surprised how often that's enough to override the emotional impulse.
5Have someone who keeps you calm — advisor, partner, or structured platform
The greatest value of an advisor or asset manager isn't product selection. It's the human (or system) that stops you from selling at the bottom. Vanguard has quantified this in multiple studies: about 1.5% per year — exactly the behaviour gap. Anyone investing alone should at least have an "investment buddy" — a trusted person to discuss every major portfolio change with in advance. The delay alone eliminates half the bad decisions.
06How arvy structurally fights the behaviour gap
Most investment apps are optimised so that you look as often as possible. Push notifications on every price jump, red and green numbers in real time, gamification. That's not a coincidence — it's a business model. More engagement = more trades = more fees. arvy does the exact opposite. That's the honest editorial part of this article.
We invest with you — same strategy, same volatility
When the market falls, we lose too. That's why we stay calm — not because we don't care, but because we understand it's part of the process. Skin in the game isn't a marketing slogan — it's the structural guarantee that we have the calm to advise you correctly.
We explain instead of alarming
No push notifications at −2%. Instead: regular updates that provide context rather than panic. The arvy Weekly newsletter — every Friday, in the inboxes of 12'000+ readers — gives perspective on markets, quality champions, and long-term themes. Quarterly reports on the arvy strategy. Blog articles like this one that strengthen your behavioural tools instead of exploiting your fear.
We keep you invested
That sounds simple. It's the most important thing an asset manager can do. The first rule of compounding: never interrupt it. Our entire platform is built for that — from 10-minute onboarding to 3-minute standing order to deliberate reduction of active decisions.
We combine strategy and structure
Quality investing (what we hold) plus automation (how we hold it) plus all-in cost structure (how it's paid for) — the combination is precisely tailored to the behaviour gap problem. A great strategy is useless if the platform encourages you not to hold it. A solid structure is useless if the strategy behind it doesn't work. Both together is the point.
The full positioning, including all arvy convictions (quality, skin in the game, cost transparency, automation, long horizons, education as product) is in Why arvy: Your Partner for Long-Term Investing. The hub for navigation: Investing with arvy: The Complete Guide.
07The reassuring perspective: 12 bear markets, 12 new highs
Here's the statistic every investor should know — and which serves as a mental anchor in every panic phase:
Since 1950, global stock markets have had around 12 bear markets (declines greater than 20%). Every single one was followed by a new all-time high. Not "most." Not "many." Every. The average duration of a bear market is around 14 months. The average duration of a bull market: about six years. In bull markets you systematically earn far more than you lose in bear markets — but only if you stay invested.
The only statistic that matters
Anyone who had invested CHF 10'000 in the global stock market in 1980 and simply held — through Black Monday 1987, through Dotcom 2000, through 9/11, through Lehman 2008, through COVID 2020, through the 2022 rate shock — would today (as of 2026) have a multiple of that amount. Anyone who had sold in each of those crashes and waited for "the right re-entry point" would have a fraction.
The difference isn't strategy. The difference is behaviour.
Investing isn't a sprint. It's a marathon. And in a marathon, you don't win by stopping at every gust of wind — you win by holding your pace and running through it. The wind is temporary. The destination is permanent.
08Frequently asked questions
Is the 1.5% behaviour gap actually proven?
Yes, multiple times. Morningstar has published the "Mind the Gap" study annually since 2014, comparing investor returns to fund returns across all major fund categories. The gap fluctuates but consistently lands between 1.0% and 2.0% per year. Vanguard reaches similar conclusions in "Advisor's Alpha." Dalbar QAIB is more aggressive (often 3% and more) but methodologically debated. The conservative, scientifically robust figure is 1.5% — and that's the one we use.
Am I automatically better off with an advisor?
Not automatically. It depends on what the advisor does. If they help you stay calm in crashes, they're absolutely worth their fee — Vanguard's studies value this "behavioural coaching" at around 1.5% per year. If instead they trade actively, churn frequently, or push you toward strategy switches, they can make the behaviour gap worse. Always ask: what is my advisor's actual function?
What do I do when the market is falling right now?
Ideally: nothing. Hold your savings plan. Look less often. Remember the statistic from Section 07 (12 bear markets, 12 new highs). If you feel the urge to do something, read your pre-written rules (defence mechanism 4). If you're still uneasy, talk to someone before acting (defence mechanism 5). The worst reaction is almost always the fastest one.
Should I invest more during a crash?
If you have a monthly savings plan anyway, you're doing this automatically — buying cheaper shares when the market is down (dollar-cost averaging). An additional lump-sum purchase during a crash makes mathematical sense but is psychologically very hard to maintain. If you have the confidence: yes, buy more. If not: just hold the plan, that's already 90% of the advantage.
How do I learn to look at my portfolio less often?
Structurally, not by willpower. Delete the app from the home screen. Move it to a folder on the second or third screen page. Turn off all push notifications, no exceptions. Set a fixed quarterly appointment in the calendar. Within four weeks the "quick check" habit will be gone.
What if I've already made mistakes — like selling in 2022?
Past mistakes are sunk costs. You can't reclaim them. What you can do: do better starting today. Anyone who sold in 2022 learned a hard lesson. The more important question is: what do you change structurally so the same mistake doesn't happen in the next crash? Automation, less checking, pre-written rules — that's the answer. Guilt is unnecessary. Structure is necessary.
How does the behaviour gap differ between professionals and retail investors?
Surprisingly little. Professionals also make behaviour-gap mistakes. What pros do better: they often have structural processes (risk management rules, investment committees, predefined rebalancing triggers) that filter emotional decisions. Retail investors can replicate exactly these structures — through automation, rules, and tools like asset management. The goal isn't to be "less emotional" — nobody achieves that. The goal is to take emotions out of the critical path.
Isn't arvy also a platform — so also an incentive to look often?
This is a deliberate design choice: arvy is intentionally less engagement-optimised than most competitors. No push notifications on every price jump, no gamification, no "streak" system. Instead: a weekly newsletter with substance, quarterly reports, educational content. You should interact with the app as little as possible — the savings plan runs in the background. That's not coincidence. It's strategy.
Further reading & related articles
Investing with arvy: The Complete Guide
Where to start · what to read · what to do
The Tortoise Problem
What to hold — when you can
The True Cost of Investing
Behaviour gap as biggest invisible cost
The True Cost of Waiting
Cash sitting as behaviour gap variant
The Power of Savings Plans
Automation as the most important lever
10 Biggest Investing Mistakes
The negative curriculum
You are the most important variable
We've talked in this article about studies, about loss aversion and recency bias, about the five most expensive mistakes and the five structural countermeasures. In the end, it comes down to one insight: you aren't the problem — and you aren't the solution. The structures you build around yourself are both. Good structures carry you through every market phase without your discipline being tested. Bad ones force you to make the hardest decisions in the hardest moments.
An automated standing order, set up once and then simply running. An app you only need to look at once a quarter. A newsletter that gives you context instead of panic. An asset manager that invests with you and loses with you when markets fall. These aren't "nice to haves." They are the structural prerequisites for your investments to actually do over 30 years what they are supposed to do — compound, without being interrupted. And that is all that matters in the end.
Written by Thierry Borgeat, Co-Founder of arvy, and reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. The 1.5% behaviour gap figure is based on Morningstar's "Mind the Gap" study series since 2014, consistent with Vanguard's "Advisor's Alpha." The loss aversion research stems from the work of Daniel Kahneman and Amos Tversky (Prospect Theory, 1979). The "10 best days" statistic is based on JP Morgan Asset Management's Guide to the Markets. Return calculations use the standard savings plan formula: FV = PMT × [((1+r)^n − 1)/r], with monthly compounding. Last updated April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. Past performance is no guarantee of future results. Return assumptions are historical averages. arvy is a FINMA-supervised asset manager with a CISA licence (Art. 24). Imprint & Legal Notice.
