Introduction

Let’s be blunt: emotional investors often end up on the losing side. It’s not just a saying; it’s a statistical fact. According to a study by Dalbar Inc., emotional decisions can cost investors 4-6% in return annually. So, how do you dodge this pitfall? By being smart, strategic, and above all, level-headed. Let’s dive in.

The Emotional Investor: A Profile

What is an emotional investor? Picture this: headlines scream that the market is plummeting. This investor panics and sells, only to buy again when “things look better,” usually at a higher price. Sound familiar? If so, read on.

Stay Diversified: Your Shield Against Volatility

The first rule of investment is diversification. It’s not just putting your eggs in different baskets; it’s choosing baskets in different markets, sectors, and countries. This acts as a buffer when volatility strikes. A study by Vanguard shows that a diversified portfolio can yield a 12.5% higher return compared to a non-diversified one.

Consult an Experienced Investor: Your GPS

Big decisions shouldn’t be made in a vacuum. Consult someone who’s been around the block. An experienced investor can provide insights that are not evident to a layman. Think of them as your investment GPS, guiding you through complex terrains.

Turn Off the News: Your Sanity Saver

Here’s a controversial take: stop watching the news, especially if you’re an investor. News is often sensationalized, prompting emotional reactions. A study published in the Journal of Finance showed that stocks often overreact to news, both good and bad, leading to price corrections later.

Keep a Clear Head: Your Best Asset

Don’t make investment decisions when you’re feeling emotional, period. A study by Barclays found that investors who made impulsive decisions saw a 20% lower return over ten years compared to those who stayed the course. Whether you’re euphoric or scared, step back. Take a breath. Then decide.

The Power of Proactive Investing

The opposite of reactive investing is proactive investing. This means having a plan and sticking to it, regardless of market ups and downs. Our close partners at DFA funds is well known for leveraging one strategy for well over 4 decades & sticking to it.

Why? Because pivoting only makes sense if the initial plan was found to be WRONG.

By avoiding knee-jerk reactions, you set yourself up for long-term success. It’s not sexy, but it’s effective.

Conclusion: Your Emotions Aren’t Your Financial Advisors

Emotions are terrible financial advisors.

They’re loud, irrational, and have zero understanding of market dynamics. And let’s face it, in the world of investing, they’ll cost you money.

Your best bet? Stick to the rules: diversify, consult, ignore the news, and keep your head cool.

…because when emotions go down, your returns go up.

So, where do you get your stock market info? Share your go-to sources, and let’s demystify investing together. Email our founder with your questions at blaine@progresswealthmanagement.com.