How To Keep Emotion From Influencing Investment

17

December, 2018

AK Equity Group

There’s no way around it: investing can get emotional. It’s your hard-earned money, after all. But during seasons of market volatility, it’s easy for some investors to get scared and be driven out of the market. However, the fear that causes these investors to sell will also typically keep them out of the market during much of the recovery that inevitably follows.

Ideally, a steady-handed investor doesn’t let emotions get the best of their investment decisions, and charts a clear path through the market’s ups and downs. While it’s impossible to completely keep your emotions out of investing, there are some strategies you can use to minimize the chance that your emotions will lead to rash decision-making.

Commit your investment plan in writing. Having a plan put to paper can help keep you on track towards your long-term goals, especially when the markets get rough.  It’s ideal if you can make your plan when the markets are calm. Then, you can return to, and review, your plan periodically.  This will help you keep perspective and ensure that you don’t make costly, sudden decisions in reaction to changes in the market.

Study up on market history. The more you learn about market history, the more you’ll be able to keep downturns in perspective. Over time, the market naturally vacillates between a bull market and bear market. Ultimately, the long-term trajectory of the market is upwards; that means that bull markets tend to last longer and add more value than bear markets manage to take away. While this knowledge may not make a downturn entirely easy to take, it can help keep you from overreacting to a market correction.

Successful investors expect some bad months, or even years, and don’t allow themselves to abandon a well thought out investment plan.

Check your portfolio less often (or have a professional keep an eye on things for you). When investors check in with their portfolio on a daily basis, they may be unprepared for the fluctuations they will find. Zooming in for a daily update on market movements can feel like one is riding a roller coaster. These feelings can, in turn, increase the chances that an investor will make reactionary decisions that aren’t aligned with their long-term goals.

A better strategy can be to commit to checking in on your portfolio less often. Typically, the longer the period between check-ins, the greater the chances the market will be up overall since your last check in.

Alternatively, if you find that market fluctuations keep you up at night, it might be time to have professional financial advisor help you manage your portfolio. While this service typically comes with a fee, it may be well worth it if it helps you avoid costly mistakes and progress steadily towards your financial goals.

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