INVESTING

Emotions and Investing

Our emotions affect a lot of things in our life. Sometimes we make decisions, not realizing that it is an emotional response. With investing, our feelings of gains and losses can cause us to make rash or delayed decisions. No one can say with absolute assurance what will happen in the market. With a great deal of reasoning and research we can make informed decisions, but there is also a component of unpredictable factors. It’s essential to understand the emotions that may be elicited when there are upturns and downturns.

Emotions

Fear can be attributed to many things when it comes to investing, and can be defined as being afraid of someone or something that may be threatening or painful. Whether that be fear of the unknown, fear of not having enough knowledge, or even fear of losing all of your money. Whatever makes you fearful about investing, try researching more about it to ease your feelings.

Anxiety can be defined as a feeling of uneasiness, fear or dread. The level of anxiety will vary in intensity depending on the person and situation. Feeling anxious in relation to investing can feel intense because it involves your money. Having recollection of the recent economic downturns, or even unrealistic expectations of gains can have an effect on our anxious feelings. This can lead you to make rash decisions or even not assume risk that could net you profits

Embarrassment can happen when you feel like you don’t have an adequate amount of knowledge. Making decisions on what stock, portfolio, bond, or another instrument you would like to purchase can be a difficult task, especially if you feel uneducated. Embarrassment can cause you to not ask questions, or not do a proper amount of research to ensure that you are making a sound investment decision.

Overconfidence can be seen as an excessive amount of trust in something or someone. When investing, this can occur when you experience a large gain or increase in your investment over a short period of time. The large gain gives the impression that this investment can be trusted to gain even more. The reasons for this increase could be a multitude of reasons including just being lucky. Without that understanding, our confidence can lead us to making a less than favorable decision.

Tips to keep in mind

Find ways to reassure yourself that you have made informed decisions. This reassurance can be felt by doing several things. Research the companies you plan to invest in and what indicators to look for when making an investment decision. Remember that both company performance and consumer confidence help to drive the price of stocks. After making a decision, trust that you made the best decision with the research and information you had access to.

Diversify your investments to mitigate your risks. Diversifying can be defined as the act of mixing a variety of investments to lessen the risk of losing your money. One way that this is often done is by buying investments in different industries. Another tactic that many investors use is by buying a mix of investments like stocks, bonds, and crypto, or even choosing investment portfolios that have already been diversified.

Pick a consistent variance to check on your investments. Our emotions begin to heavily influence our investing decisions when we check our investments constantly. Checking too much can lead to only seeing a small piece of the investing picture. Not looking often enough can lead to us holding on to investments for too long.

Utilize the resources available to you. If you know any investing professors, see if you can schedule a meeting to gain more investment knowledge. If you are looking for a financial advisor, consider scheduling a free appointment with one of the Credit Union’s Financial Solutions advisors. The internet is filled with a lot of resources but also a lot of misinformation. To combat that misinformation, consider finding one answer or resource in at least two different places.

An important thing to remember is that historically speaking, every dip or downturn in the market has recovered over a period of time. That understanding highlights that investing is most often thought of as a long term commitment because of the likelihood of recovery from losses and potential for higher returns. Don’t let investing frustrate you, it is a topic of constant learning even for those that are considered experts.

Sources:

medlineplus.gov/anxiety.html

https://www.investopedia.com/articles/basics/10/how-to-avoid-emotional-investing.asp

https://www.peoples.com/wealth/articles-and-perspectives/articles/advice/the-impact-of-emotions-on-investing