Anchoring: The Mindset Mistake That Quietly Steers Investors Off Course

I meet monthly with thoughtful, experienced investors who genuinely seek the best decisions. Despite any savviness, however, they often fall prey to a similar mental trap: anchoring. It’s not one of ignorance but of human nature.

Anchoring is the tendency to grab onto a familiar price, memory or belief and let it shape decisions long after circumstances change. It feels harmless and rational, but for investors, it’s one of the most pervasive, costly mistakes. People assume a formerly-good investment remains so since it feels familiar or safe. And they expect their currently high-priced investments to keep rising.

We all anchor, which quietly misleads us.

Recently, a long-time client reminded me just how deceptive anchoring can be. He smiled while saying he’d bought gold in what he called a “fantastic investment” 35 years ago. Gold had hit a recent high, and he felt validated, thinking the price confirmed decades of good judgment.

 “What has gold actually done for you all these years?” I asked.

He paused, then shrugged. “Well … nothing, I guess. But the price is high.”

His answer was honest and revealing. He was anchored to a belief that he’d made a smart call decades ago. The higher price today, coupled with his pride and nostalgia, affirmed this thinking. But we ran the numbers, and his annualized return was under 6%. Not bad, but certainly nowhere near the return of a diversified portfolio of growing businesses paying growing dividends. Anchoring made his investment feel successful despite the contradictory results.

Once you learn to spot anchoring, you’ll see it everywhere.

Walk into a grocery store and notice the sale tags: “Was $5.99 — now $3.99!” The old price didn’t matter until you saw the difference. Suddenly $3.99 feels like a bargain.

That anchoring works both ways. Imagine a $1,500 TV is on sale “for a limited time” for only $1,200. What a deal! But imagine that same TV on sale for $300. Suddenly suspicion kicks in: Why would such an expensive TV be so discounted? Bad reviews? Was it a return?

Our downfall is believing a product’s value is anchored solely to its initial price. This powerful mental trap is used often in retail because money is emotional. And in investing, where the stakes are much higher, those emotions intensify: Pride, regret, sentiment and fear weigh more than math. For investors, this looks like anchoring to:

• Old purchase prices: “I’m not selling until it’s back to $50.”
• Beloved assets: “This rental has always done well for us.”
• Family history: “My father swore by gold.”
• What used to work: “Tech stocks were incredible in the ’90s.”

Anchoring is like refusing to update your GPS because you preferred the old route. It’s familiar, but it may force an unnecessarily long journey.

The brain loves shortcuts, but they rarely serve investing. Real investing requires updated information and a willingness to ask, “What solves my problem today?” Anchoring, however, answers the wrong question: “What used to make me feel good?”

We see a particularly stubborn form of anchoring in real estate. A house isn’t just an asset; it weaves decades of memories, identity and stability. This creates emotional equity, which is often mistaken for financial equity. Ask, and people can usually state what they paid for their home. They probably recall the year of purchase and even their loan’s interest rate. Those anchors muddy the more important questions: “Does this home make life easier or harder? Does it fit the way I live today? Does it support the way I’ll need to live tomorrow?”

Just like investments, what mattered then may not matter now. Anchoring keeps people stuck long after a move could bring clarity or financial breathing room.

Anchoring ties you to the past, but adapting to the future helps you grow wealth. Compare owning gold to growing businesses. Gold sits still. Businesses solve problems, produce goods, hire workers, expand into new markets, raise prices and share profits with owners. Gold’s value depends solely on someone else paying more, later. Anchoring makes static assets look attractive and compounding assets look ordinary.

Anchoring also sneaks into headlines. Investors anchored to near-zero mortgage rates believed borrowing would stay cheap forever. When markets soared after the pandemic, people anchored to the belief that stocks would only go up. When inflation surged, many anchored to thinking prices would never fall. Anchoring creates almost every “this time is different” moment — and the regret that inevitably follows.

Fortunately, anchoring isn’t fatal. With practice and awareness, you can overcome it. Start with three habits:

First, always ask, “Compared to what?” Your gold might be up … compared to what? Your home may be valuable … compared to what alternative? Your favorite stock might feel safe … compared to what opportunity cost?

Second, focus on utility. Ask, “How does this investment serve me?” not “How does it make me feel?” The market does not reward nostalgia.

Third, update your assumptions. When your circumstances change, so should your thinking.

My gold-owning client wasn’t wrong to feel proud. Making and standing by a decision takes confidence, especially over decades. But anchoring can blur the line between feelings and results. When he saw his true return, he realized he wasn’t measuring outcomes but beliefs. When he compared a motionless object with income-producing enterprises, only one would work for him.

Good investor behavior isn’t about comfort, but clarity. Your future wealth depends on knowing the difference. And if you’re unsure, ask someone who can guide you away from anchors that may keep you stagnant.