This message was written 5 years ago. It bears repeating now. Many of us are making emotional decisions based on our ‘facts’.
We all believe that we make important decisions based on fact. Our research, typically, is quite limited. We ask our friends, neighbors, co-workers, family or a trusted adviser their opinion. If it aligns with what we believe our decision is made.
Many times, we make decisions based on current events. These short-term based decisions are very emotional and are not evidence based.
You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.
As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)
greed regret trust loyalty envy
1. “It doesn’t matter how sophisticated his charts are or how much sense he makes, I just don’t feel comfortable letting him handle my money.”
2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”
3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”
4. “I’d wish I’d known that stock was going up, I would have bought more shares.”
5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”
Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty
We as people are naturally predisposed toward or against specific investing tactics. What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view.
It is easy to overweight information that validates our perspective while minimizing any information that goes against what we inherently believe.
The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions.
The recent up and now down markets have many investors on edge, asking….should I get out of the market for good? This is really, what the financial institutions want…they make money when money moves.
Because we make emotional decisions with our investments. We need the help and guidance of an investor coach/fiduciary adviser.
Together you and your coach will develop a customized plan for YOU. Then going forward your coach will keep you disciplined to your plan.
This is where a true adviser really, earns their fees.
As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.