Don’t Let Recency Bias Derail Your 2026 Investment Plan

It's easy to fall into the trap of thinking that last year's winners will keep winning, especially when the headlines are loud and exciting. But by spotting recency bias and setting up a few guardrails, you can keep your 2026 investment plan true to your long-term goals—not just the latest buzz.

What Recency Bias Is

Recency bias is when we give too much importance to what just happened and overlook older, often more meaningful, information. In investing, this can mean believing that the latest market moves will keep repeating—ignoring the lessons of long-term history.

Studies in behavioral finance show that this bias can trick us into thinking short-term ups or downs are the “new normal.” That often leads people to ignore their investment plan or the basics and instead chase the latest hot trend or panic over a news story.

How It Hurts 2026 Investment Choices

After a rollercoaster year like 2026, recency bias can be especially risky. It’s easy to feel pulled toward last year’s winners or to steer clear of anything that just took a hit—even if your goals and comfort with risk haven’t changed at all.

Common patterns include:

• Chasing recent winners: buying into sectors, funds, or “hot” themes after strong recent performance, assuming the run will continue.
• Panic selling after declines: exiting diversified portfolios or specific holdings during temporary drops, locking in losses instead of allowing for a recovery.
• Abandoning sound strategies: switching managers, funds, or asset allocations based mainly on short-term results rather than a full evaluation of process and risk.
• Taking more risk than planned: increasing exposure to volatile assets because recent gains create overconfidence.

Over the long run, these habits can lead to buying high, selling low, and missing out on the true power of compounding—something you only get by sticking with a disciplined approach.

How to Guard Against Recency Bias

You can’t wish away recency bias, but you can build simple habits that help keep it from derailing your investment decisions in 2026.

Practical steps include:

• Write down your investment plan: Jot out your goals, time frame, target mix, and how much risk you’re comfortable with. When things get noisy, you’ll have something solid to come back to—your plan, not just the latest headlines.
• Look at the big picture: Rate your funds or strategies over several years and compare them with meaningful benchmarks—not just how they did over the past few months.
• Rebalance instead of reacting: when one asset class outperforms, trim it and add to laggards to return to your target mix, rather than chasing what just went up.
• Set decision “speed bumps”: for example, require a waiting period or second opinion before making major allocation changes based on recent market moves.
• Limit headline-driven trading: schedule periodic portfolio reviews (e.g., quarterly or semiannual) rather than trading in response to each piece of news.

If you work with an adviser, ask how they address behavioral biases, including recency bias, in their planning and communication process.

Disclosure

This article is for general informational and educational purposes only and does not constitute investment, legal, tax, or other professional advice. It is not an offer to buy or sell any security or to participate in any specific investment strategy, and it should not be the sole basis for any financial decision. The discussion of behavioral biases, market conditions, or potential strategies is generic in nature and may not be appropriate for your individual circumstances. You should consult a qualified financial professional who can consider your personal situation, objectives, risk tolerance, and time horizon before making any investment decisions. All investing involves risk, including the possible loss of principal, and no strategy can guarantee profits or prevent losses in any market environment. References to regulatory concepts, including the U.S. Securities and Exchange Commission’s marketing rule, are provided solely for context and do not imply that any regulator has reviewed or approved this content. Past performance is not indicative of, or a guarantee of, future results.

Sources:

• Investopedia – Understanding Recency Bias: Impact on Decisions in Finance: https://www.investopedia.com/recency-availability-bias-5206686​
• Charles Schwab – Recency Bias Result: https://www.schwab.com/investing-bias/recency​
• ScienceDirect – Recency bias and the cross-section of international stock returns: https://www.sciencedirect.com/science/article/abs/pii/S1042443123000069​
• Kotak MF – Recency Bias in Investing: Meaning, Impact & How to Avoid it: https://www.kotakmf.com/Information/blogs/recency-bias-in-investing_​
• Bajaj AMC – Chasing Performance vs Managing Risk in Investing: https://www.bajajamc.com/knowledge-centre/chasing-performance-vs-managing-risk-investing​
• Gotrade – Recency Bias: Why Investors Overreact to Recent Events: https://heygotrade.com/en/blog/recency-bias-investing​
• FNBO – How Your Emotions Could Impact Your Investment Returns: https://www.fnbo.com/insights/wealth/2026/how-your-emotions-could-impact-your-investment-returns​
• Edelman Financial Engines – Recency Bias and Staying Rational: https://www.edelmanfinancialengines.com/education/investment-management/availability-bias/​
• Towerpoint Wealth – The Psychology of Market Cycles: Why Investors Buy High and Sell Low: https://towerpointwealth.com/the-psychology-of-market-cycles/​
• UTI Mutual Fund – Recency Bias in Investing: Meaning & Examples: https://www.utimf.com/articles/avoiding-recency-bias-in-investing​
• SEC – Investment Adviser Marketing (Final Rule and related materials): https://www.sec.gov/files/rules/final/2020/ia-5653.pdf​

SEC – Investment Adviser Marketing overview: https://www.sec.gov/rules-regulations/2020/12/investment-adviser-marketing