Behavioral Portfolio Theory

Behavioral Portfolio Theory (BPT) suggests that investors don’t aim for a single, balanced portfolio, but rather build separate "layers" or segments tailored to different goals and emotions. For example, one segment might focus on safety for long-term needs, while another seeks higher returns for shorter-term desires. These layers reflect real-world biases and emotional responses, leading to portfolios that aren't perfectly diversified but are more aligned with personal preferences and psychological comfort. In essence, BPT explains how psychological factors influence investment choices, resulting in more complex but personally meaningful investment strategies.