Strategies to avoid emotional investing

They say that investing is all about time in the market and not timing the market. However, emotional reactions to market fluctuations can make it difficult for investors to stay focused and make rational decisions.

There are several psychological factors that exist in the investment decision-making process which can influence one’s desired investment outcomes.

These include fear, overconfidence and loss aversion. In order to avoid these factors, we recommend that investors:

• Focus on long-term goals. Try to see the bigger picture and remain long-term oriented. Generally, losses are more likely in the short term, so making emotional, impulsive decisions can hinder the success of your portfolio.
• Maximise diversification. Focus on seeking consistent returns by investing across market sectors to protect against extreme market risks.
• Examine your motives for making a shift. If you are planning to make a change in your portfolio, identify why exactly you are choosing to make that change. If the buy or sell decision you are about to undertake is because of a short-term market movement, that decision is probably based on emotion and should not be executed. If your decisions are based on a long-term view and backed with data, that is more often than not a prudent decision.
• Take the news with a grain of salt. Dramatic market news can be a factor injecting higher emotions around your investments. Reducing your exposure can limit how often emotions will impact your portfolio. Reading insights from trusted sources or consulting with your Wealth Manager can prove immensely helpful.
• Create a rules-based approach to investing. By setting rules and sticking to them, you can eliminate emotion from the equation.
• Enlist a trusted advisor. Emotional trading can cost investors dearly, so enlisting the help of a trusted professional will enable you to stay on track.

Another way to avoid emotional investing is to have a sound investment game plan. This will help to remove emotions from the equation and enable you to make the most of potential market opportunities.

The best way to achieve this is by working with a wealth specialist who appreciates the need for impartial analysis in the face of market turbulence and can help you to create a portfolio designed to weather most conditions.

At Wealth and Investment, our approach is based on a customised strategy that reflects your risk tolerance and personal goals. The overriding principles governing our investment philosophy are the provision of security for your assets, diversification to mitigate risk, and the delivery of competitive and sustainable returns.

If you would like to discuss any aspect of your investment portfolio, please speak to your Relationship Manager, who will put you in touch with a wealth specialist.