Reducing your emotions can give you a better chance for investing success
Money is always an emotional subject, but often when
our emotions get involved with our investments we
will make wrong decisions. And that can be a costly
mistake.
Keeping emotions and investing separate seems
almost impossible for many investors. When reacting
too quickly and letting emotions cloud judgment, even
the most experienced investors do not make the best
decisions. However, keeping emotions away from
investment decisions can give you a better chance
for success.
Here are four tips on how to keep emotions and
investing separate:
Tip #1: Set Financial Goals
It sounds so simple, but setting financial goals really
is the first step to investing, and financial goals can
keep emotions out of the picture if done correctly.
Having goals will help you keep an eye on the big
picture.
For example, if you are saving for retirement in 30
years, you know that you have more time to make up
for any losses than if you plan to retire in 5 years.
These goals can also keep you focused on what you
need to do today to get there.
Tip #2: Stop Checking on Your Performance
Every Day
Do you check up on your investments every day,
sometimes spending hours figuring out how you’re
doing and what you could have done better if you had
just moved your investments around? If so, you are
just going to drive yourself crazy because all you’ll
really see will be market gyrations and mistakes you
think you could have avoided.
Checking too often will not benefit your portfolio in any
way, but it will cause anxiety. This is even more true if
you own individual stocks as checking stock prices
too often can cause you to panic, and you might make
a snap judgment to trade. Instead, keep your checks
to monthly or quarterly, and concentrate on sticking to
your overall plan and goals.
Tip #3: Know the Risks in What You Buy
Again, it sounds so simple, but knowing what you are
buying is crucial to help you avoid emotional setbacks
in investing. Always do your own research before
purchasing anything, even if you have outside
assistance.
Understand what the investment is, how it will help
you achieve your goals, what the risks are, and when
and how to exit. Without your own research, you will
not take full responsibility for your trades, introducing
negative emotions.
Tip #4: Create a Professional Buffer
You can create some distance between yourself and
your investments by putting a financial advisor in the
middle of the two.
By entrusting a neutral third party who can help you
examine your situation objectively and encourage you
to stay on track, you can hold yourself more
accountable for the things that you can actually
control