When the financial news is filled with eye-catching headlines and bold predictions, it can have a major effect on your emotions. When these doomsday headlines are coupled with volatility and downturns in the stock market, it can be tempting to make emotional investment decisions.
Your approach to investing can be anything but rational when your hard earned wealth is on the line, and this can lead to poor decisions. Thankfully, there are some ways to avoid emotional investing and to remain rational and cool-headed.
Maximize diversification
Spreading your eggs into multiple baskets can help ease your dramatic urgency to emotionally react when one investment or asset class has a temporary downturn. Even more importantly, being well-diversified can potentially reduce your risk while increasing your returns over the long-term.
Take international equities, for instance – when the US stock market is down, they might be up, and vice versa.
Take the news with a grain of salt
The news can inject fear or greed into your otherwise rational decision-making. When the media makes exclamations that investments will go up or down, it seems like a smart decision to follow their heed. However, prudent investors realize that these are predictions – not facts. No one can accurately predict where an investment will move next, let alone a journalist.
Utilize a trusted advisor to avoid emotional investing
The right advisor can bring great value when it comes to your struggle to avoid emotional investing. They can bring extensive experience in making rational long-term investments to the table, and serve as a “coach” to help you reach your goals.
We recommend a fiduciary advisor, who is legally required to act in your best interests, and will have to always have your goals and needs in mind.
If you’d like to learn more about how to avoid emotional investing, contact us today.
