4 Ways to Take the Emotion Out of Investing

by | Aug 24, 2020 | Investor Behavior

Just don’t get emotional about your investments.  It’s that easy right?  Not quite. Bad news about a company you own, or a sector you’re invested in can make you want to sell everything. Yes, investments can fluctuate based on news day to day, but when it comes to the stock market – it’s important to think long term. Making snap decisions could be hurting your financial plan in the long run, and we don’t want that.  So how do you remain un-emotional about investing?  Here are four little “tricks”.

Trick 1: Find an Advisor

Working with an advisor can be your first line of defense against making emotion decisions with your money. Investment advisors and financial planners can act as a behavior coach. In doing so, they can prepare you ahead of time to react calmly and unemotionally in times of market change. Here at Mullooly Asset Management, we try our best to educate our clients on the importance of planning, behavioral finance, and rules-based investing.

Trick 2: Put Your Plan in Writing

We all have that favorite dish that we love to make in the kitchen.  You know, that one you’ve made hundreds of times and know the recipe like the back of your hand?  Having a recipe memorized in your head is great, but what happens if you forget a step?  Having the recipe written down to glance at get the whole process back on track.

Your investments and your financial plan are the same. Putting your investment plan and financial plan in writing will provide you with reassurance. If you’re getting emotional about an investment, looking at your plan can keep you focused and ease that anxiety. Having a well thought out, prepared plan will have you ready for both good and bad scenarios. Seeing this in writing can provide the relief that you’re doing the right thing.

Trick 3: Forget About Your Portfolio… For a Bit

There was a study conducted in 1979 that introduced the “loss aversion” principle. This principle is used to describe instances where the weight of a loss is greater than the benefits of a reward. This principle is very real to plenty of investors. Investments going down feels much worse than the feeling of an investment going up. If this sounds like you, it might be time to take a step back from your portfolio. Checking your portfolio on a daily, weekly, or even monthly basis is a good way to drive yourself crazy.  The market fluctuates on a daily basis and those moves will make you want to make emotional decisions with your money. Regular rebalancing, and the occasional check-in, are acceptable, but forgetting about your portfolio for a while can benefit everybody.

Trick 4: Read Up On Market History

Depending on your depth of investment knowledge, you may already know what a bull market and a bear market are. But if you’re looking to better prepare yourself emotionally, you may want to do a bit of research into what historically happens in each market type. At Mullooly Asset Management, we do our best to intertwine lessons from market history into our weekly videos, podcasts, and blog posts.  This has the potential to make your investment decisions less behavior-based as you become more informed about past trends.

Removing your emotions from your investments is easier said than done. If you’re going to tune in to the nightly news or read about your favorite company online, remember to step back and think about your portfolio’s big picture. Doing so could save you in the long run.  If all of this seems overwhelming, and you’d like to utilize Trick #1, we would be happy to speak with you!  Click here to schedule an initial meeting with our team.  There is no cost or obligation.

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