The emotion of investing

In times of turmoil, your biggest risk is sometimes your emotions, and this is true for decisions when it comes to investments.

Consider these articles from the past decade:

- In 2008, investment commentator Arun Abey wrote in the New Zealand Herald “Your worst enemy? It could be you”.

- In 2012, the New York Times published an article titled “Managing the Emotional Turbulence of Investing”. 

- In 2016, the Christian Science Monitor published the headline “After Brexit, what should investors do? Relax”.

Although spanning almost 10 years there are common, yet crucial, themes: 

  1. Market turmoil is a fact of life or, as some would say, part and parcel of normal. 
  2. Emotion and how we manage our emotions plays a significant role in our financial decisions, for better or worse. 

In 2008 Mr Abey wrote: “Knee-jerk reactions and emotional ‘thought traps’, if not kept under close control, can easily derail our investment strategy”. 

 

So what are some of the steps that investors can take to control the emotional traps that these turbulent times could spring on us at any moment? 

  1. Hire a good adviser
    Whatever your needs or ambitions, one of the most significant roles an adviser may play is to save you from yourself.

  2. Understand your own risk profile
    Work with your adviser to understand your risk profile and set your plan accordingly. Simply put, your risk profile is a measure of your willingness to take risks – what is acceptable to you and what isn’t. Once you get a handle on this, you are more likely to develop an investment plan you can be comfortable following.
    The assassination of President Kennedy in 1963, Black Monday of 1987, The Dotcom bubble, September 9/11 and the Global Financial Crisis in 2008 have all come and gone, the markets remain.

  3. Stick to your plan
    If you have a structured, informed plan in place, then stick to it and ignore the market noise (often referred to as volatility) – there will always be market noise, and in this connected world there is more of it than ever.
    It’s important to remember that when using investment as a long-term strategy, market movements are short-term events. Set your goals and stay focused because if your plan is good, it has already been designed to deal with the ups and downs that accompany investing.

The emotion of investing

In times of turmoil, your biggest risk is sometimes your emotions, and this is true for decisions when it comes to investments.

In times of turmoil, your biggest risk is sometimes your emotions, and this is true for decisions when it comes to investments.

Consider these articles from the past decade:

- In 2008, investment commentator Arun Abey wrote in the New Zealand Herald “Your worst enemy? It could be you”.

- In 2012, the New York Times published an article titled “Managing the Emotional Turbulence of Investing”. 

- In 2016, the Christian Science Monitor published the headline “After Brexit, what should investors do? Relax”.

Although spanning almost 10 years there are common, yet crucial, themes: 

  1. Market turmoil is a fact of life or, as some would say, part and parcel of normal. 
  2. Emotion and how we manage our emotions plays a significant role in our financial decisions, for better or worse. 

In 2008 Mr Abey wrote: “Knee-jerk reactions and emotional ‘thought traps’, if not kept under close control, can easily derail our investment strategy”. 

 

So what are some of the steps that investors can take to control the emotional traps that these turbulent times could spring on us at any moment? 

  1. Hire a good adviser
    Whatever your needs or ambitions, one of the most significant roles an adviser may play is to save you from yourself.

  2. Understand your own risk profile
    Work with your adviser to understand your risk profile and set your plan accordingly. Simply put, your risk profile is a measure of your willingness to take risks – what is acceptable to you and what isn’t. Once you get a handle on this, you are more likely to develop an investment plan you can be comfortable following.
    The assassination of President Kennedy in 1963, Black Monday of 1987, The Dotcom bubble, September 9/11 and the Global Financial Crisis in 2008 have all come and gone, the markets remain.

  3. Stick to your plan
    If you have a structured, informed plan in place, then stick to it and ignore the market noise (often referred to as volatility) – there will always be market noise, and in this connected world there is more of it than ever.
    It’s important to remember that when using investment as a long-term strategy, market movements are short-term events. Set your goals and stay focused because if your plan is good, it has already been designed to deal with the ups and downs that accompany investing.
The emotion of investing
Important information

The content on this website is for information only. The information is of a general nature and does not constitute financial advice or other professional advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances. While care has been taken to supply information on this website that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission. A disclosure statement is available from your adviser on request and free of charge.

 

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