The average investor could retire two and a half years sooner by avoiding holding too much in cash and not making investment decisions based on “emotional comfort”, according to new analysis.

Behavioural finance experts Oxford Risk reckon investors on average lose 1.5% each year from holding too much in cash.

The figure rises to 3% overall when cash holdings are combined with making emotionally-based mistakes with their invested assets.

Its analysis showed that for the average investor, emotional comfort investing works out at a loss of around £1,600 a year, or up to £76,000 over 30 years.

The company said seeking emotional comfort with investment leads to errors such as focusing on familiar and domestic assets from well-known companies, chasing current and popular investment themes, following star fund managers, focusing on past performance, trading too much, not rebalancing enough to effectively diversify, and seeking income or yield over total returns.

Oxford Risk said wealth managers need to focus on behavioural alpha to help investors avoid the losses they make from poor and emotionally-driven financial decisions.

Dr Greg B Davies, head of behavioural finance, Oxford Risk said: “Investors are human and regularly make expensive mistakes, such as leaving too much cash uninvested, and behaving badly with what they do have invested. Changing investing behaviour can help people retire earlier.

“People sit on cash because it feels secure at the time. They take more risk when times are good, and reduce risk when markets drop; buying high and selling low, and systematically underperforming buy and hold returns.

“That emotional comfort adds up to substantial losses each year and over a lifetime’s investing.”

Oxford Risk said technology can help support wealth managers in hyper-personalising client engagement to support better financial decision-making. Behavioural engagement technology uses data about both an investor’s financial situation and their financial personality to weight possible message prescriptions.