The Pitfalls of Emotional Investing

August 9, 2016

 

Now is the time to think about how your manage your emotions.

 

US stock markets have been reaching all-time highs lately.  So now is a good, more relaxed time, to think about how you manage your emotions about your investments.

 

Normally, emotional behavior is associated with difficult times in investing.  We've seen these times too often since the turn of the century.  It's easy to recollect some bad events that led to short-term poor stock performance-terrorist attacks in the US, war in Iraq, the financial crisis, the US debt ceiling debate, the Arab Spring, and most recently the "Brexit". 

 

But do recollect all of those events created short-term downswings in stock prices.  Now, all the prices have recovered and set new highs.  So, how do we feel now?  Let's study the chart below for some hints:

 

 

 

 

Are we currently somewhere between optimism and elation? Let's hope so. Let's also remember those times when fear seemed to control decision making about investments. Looking back those times seem to be good times to invest.

 

Many people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to making poor investment decisions at the worst times.

 

Our suggestion: Have an investment policy that fits your personality and stage of life. Then stick to it.

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