Emotions are the soul and heart of us human beings. They play a vital and significant role in every bit of life. Finances are no exception like any other segment of life. Be it your first salary or an unexpected increment or savings or investments, every aspect has a related emotion. Emotions knock most frequently and severely as far as investments are concerned. Investors generally panic and sell out stocks while the markets are hitting a low and over-purchase when there is an ongoing boom. None of these is a wise thing to do. Letting emotions drive your investment strategy can prove fatal now as well as in the future.
Emotional investing is witnessed more in beginners or new investors who are still learning the market etiquettes. The market is a very strong force which can take you by stride either up or down, whichever way it goes be sure of being practical and realistic. Letting emotions influence your spending and investing decisions can prove to be a costly affair. Here are 4 tips for beginners to avoid emotional investing;
- Write down your investment plan
Whether it is your maths formula or your financial plan, putting things on paper is always more reinforcing. If you happen to invest in the markets while there still is calmness, you may not need to feel to commit on paper but once the markets get volatile you will need something to reinforce your commitment towards your long-term goals. The plan should indicate signals regarding which way to go if the markets are not so favorable.
If the asset allocation is appropriate and you have made the investments correctly, you would not require any changes during market corrections.
- Be researched about the market history
We do not expect you to be a well-learned investor but having some basic knowledge regarding the market jargons and movements. It is a well-established fact that markets are never the same. Even the years which have shown excellent returns were marked by many downturns and the ones which were not much yielding had many peaks.
Having a basic understanding of the market rules can help you manage your funds and wealth appropriately as well as keep you under the tab of reality. It is very important to understand that market moves in cycles of bull and bear market and that none of the phases is permanent.
A good investment plan is not about complete protection from the market trends and falls but a sturdy support to overcome the bad days with confidence.
- Don’t be a frequent visitor to your portfolio
Reviewing your portfolio is very important to ensure a good and efficient financial plan but bugging it time and again is not ok. While the markets carry their own style of submitting to a day, there are 50-50 chances for it to be a Red flag or a Green Flag.
While the behavioral economists claim that the agony of a bad performing fund is much higher then the delight of a better performing fund, the emotions of investors take a roller coaster ride when they experience such drifts leading to emotional decisions as far as investments are concerned.
As a remedy to it, commit to yourself of a fixed interval only after which you review your portfolio. No peeks in between are acceptable.
- Go for a fund manager
If you think you cannot take the emotional load of going through ups and downs, outsource your fund management. Market fluctuations sometimes come very strong which is not a weak-hearted investor’s game. It is better that you hire a fund manager who can take care of your investments on your part.
Although you will need to pay a fee for such assistance that is going to be worth it. Make sure your manager works in collaboration with your long-term goals. You can get in touch with your manager twice in a year or once every quarter for the updates.