How to avoid emotion when investing?
- Be patient
Investing is a long-term prospect, the benefits of which typically come after many years. Patience is a behavior where the benefits are mostly long-term. Sometimes the more you try to get rich quickly, the greater the chance you will lose your money. Therefore, to be patient is to endure some short-term hardship for a future reward.
- Focus on the strategy
When you begin investing, it’s important to create an investment plan followed by a time-horizon goal. If you have the patience, a long-term vision is an optimal way to invest and the easiest to stick with, and it prevents you from getting caught up in short-term traps.
- Revisit investment goals
It may be helpful to revisit investment goals when volatility picks up to see if anything has changed. Consider asking yourself questions like:
- Are my goals the same now that my investments have declined?
- Is my investment time horizon the same as it was when I built my portfolio?
- Is my financial situation the same?
- Is my portfolio aligned with my risk tolerance?
- Does my portfolio have an appropriate level of diversification?
Diversification will help you get through volatile times. Of course, there will be times when the entire market is going down, but the more frequent situation is when some sectors will be down and others won’t, which offsets the losses for the losers. Therefore, diversify your portfolio by investing in different types of assets and sectors.
- Use News for Information, Not for Decisions
Reacting to major news in the stock market is easy. This is where most of us begin making emotional investment decisions. The news causes us to react both positively and negatively, and it directly correlates to our investment decisions.