In our previous post, A Fear-Driven Investor, we discussed the damaging tendencies investors display when decisions are driven by fear or greed. I know very few people who have not experienced fear while investing, but how do you avoid letting these emotions lead to detrimental decisions?
Here are five recommendations to avoid falling prey to fear and greed:
1) Take your pulse. Recognize the physical and emotional signs that the investing environment is stressing you out. When you feel the heat, consider discussing your feelings with your financial planner or a friend. If that doesn’t work, keep a journal where you can note your feelings over time and sort out emotional feelings or decisions from the rest.
2) Have a process. An investor without a process is like a rudderless boat. There is no ability to steer and you can be thrown off course. Process helps to take the emotion out of investing and should be evaluated over full market cycles, not short time-frames. If you’ve tried to manage a process but can’t seem to make it work, consider working with an investment professional to help chart your course.
3) Fix it and forget it. Too many options or decisions may get in your way. If you have found that you’re susceptible to damaging investment decisions when trying to perfect your portfolio, reduce your decisions. Your singular decision may be a balanced investment or following the advice of a professional.
4) Focus on what you can control. Declining market got you down? Anxious because investments are hitting new highs and you think you should make more? Rather than micro-managing your investment mix, review your saving or spending decisions. Maybe you can increase your planned savings while sticking with the plan on your investments.
5) Tune out. Don’t mistake the 24-hour news cycle with prudent, personal investment or financial planning advice made for you. The goal of the media is to get your attention and in the ADD world of the internet, there is no Page 2. Things are rarely as good or as bad as the media makes them appear, and while fear is the enemy of an investor, it’s a headline writer’s friend.
Investing for a lifetime certainly comes with bumps along the way. A happy, healthy investor uses time-tested tools to combat the emotions of fear and greed.
Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.