Emotions are part of being human and come in useful in a number of situations. Being emotional when you attend your first daughter’s wedding, for example, is natural and means you’ve formed a deep connection with your child. However, emotions can often disrupt other parts of our life where more perspective is necessary. Nowhere is this more apparent than in investing. Getting emotionally attached to your investments not only causes unnecessary stress, but it can also throw your long-term plan off course (and cause a lot of extra work for your advisor). Are you an emotional investor? If you display any of the following four signs, there’s a high likelihood that you are.
You Always Watch Financial News
When you regularly tune into the financial news, your emotions are manipulated by pundits and anchors whose job it is to create fear. Those who are regularly on financial news channels are there to increase ratings, not to help you develop a solid investing plan that will fund your future. They increase these ratings by scaring people into tuning in. They create the false impression that if you don’t watch their programs, you’ll miss something that will adversely affect your portfolio. An emotional investor tends to watch the financial news regularly and react to news stories instead of trusting their advisor.
You’re Tempted to Sell as Soon as Your Stock Loses Money
Emotional investors tend to check their investments daily and react when they see even the smallest drop in value. When they do this, they lose sight of the big picture. Investment strategies are meant to be long-term and take into account the daily fluctuations of the market. When you sell a stock just because it lost a few cents or dollars, you damage your strategy and cause yourself a lot of undue stress.
You Make Frequent Calls to Your Advisor
When you developed your investment strategy with your advisor, you put trust in the fact that he or she knew what they were doing and would help you reach your financial goals. Emotional investors tend to forget this when they see negative financial news or a dip in their stocks. Instead of trusting in their strategy and their advisor, they instead make frequent calls to confirm their plan, to have their worries put at ease, or—worst of all—to question or berate their advisor for the choices they made. When you make frequent calls to your advisors, it erodes trust and could also land you in their PITA (pain in the ass) category.
You Are Constantly Stressed Out by Your Investments
It’s understandable that you can become stressed by your finances and investments. After all, we are humans and our cognitive biases and emotions play a huge role in our decision-making process. That being said, you should not experience regular stress over your investments and this is a sign that you are too emotional when it comes to your finances. One of the best ways to reduce stress is to stop constantly checking your investments and watching financial news and trust your advisor to make the best choices.
Are you an emotional investor? If so, it’s vital that you make strides to reduce your emotional reaction to your investments by avoiding stressful triggers and, most importantly, working with an advisor you trust. If you’d like more information on how emotions contribute to investing, please reach out. I’d love to share my knowledge with you!
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Patrick Tucker, owner of True Measure Wealth Management, has over 20 years experience in the industry and has spent the last 15 years learning the ins and outs of the fee-only advisory business. He focuses on client behaviors and what ‘wealth’ means for each individual client to provide caregiving plans that leads to a mindful fulfillment of financial goals. A lifelong learner, Patrick uses his continued knowledge to become a valued partner for his clients and help them explore the wisdom of true wealth.