4 Tips to Help You Keep Your Emotions Out of Investments
Making good financial decisions requires more than just good information, you need a clear head, some discipline and a little distance.
Money is always an emotional subject, but often when our emotions get involved with our investments we will make wrong decisions. And that can be a costly mistake. Keeping emotions and investing separate seems almost impossible for many investors. When reacting too quickly and letting emotions cloud judgment, even the most professional and experienced investors do not make the best decisions. However, keeping emotions away from investment decisions can give you a better chance for success.
Here are four tips on how to keep emotions and investing separate:
1. Set financial goals. Setting financial goals is the first step to investing, and financial goals can keep emotions out of the picture if done correctly. Having a plan will help you keep an eye on the big picture. For example, if you are saving for retirement in 20 years, you know that you have more time to make up for any losses than if you plan to retire in 10 years. These goals can also keep you focused on what you need to do today to get there.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Fight the urge to check performance too often. You might be someone who has the urge to check up on your investments every day, possibly for hours. In doing so, you will see more of the market gyrations than if you check monthly or quarterly. Checking so constantly will not benefit your portfolio in any way, but it may just cause more anxiety. This is even more important if you own individual stocks or mutual funds in any kind of personal account or retirement account. Checking these holdings too often can cause you to panic, and you might make a snap judgment trade. Instead, keep your checks to monthly or quarterly, and concentrate on sticking to your overall plan.
3. Know the objectives and risks in what you buy. Knowing what you are buying is crucial to help you avoid emotional setbacks in investing. Always do your own research before purchasing anything, even if you have outside assistance. Understand what the investment is, how it will help you achieve your goal, what the risks are, and when and how to exit. Without your own research, you will not take full responsibility for your trades, introducing negative emotions.
4. Assign a professional buffer zone. You can create some distance between yourself and your investments by putting a financial professional in the middle of the two. Entrusting a neutral third party who can help you examine your situation dispassionately and encourage you to stay on track, you can hold yourself more accountable for the things that you can actually control.
Did you know? From the small purchase decisions to the large financial plans, it often helps to write things down. Then, you can examine how you come to decisions — which should lead you to make better ones.
-
Inheriting Wealth: 4 Mistakes That Could Cost You EverythingGen X and Millennials are expected to receive trillions of dollars in inheritance. Unless it's managed properly, the money could slip through their fingers.
-
'The Money Prism' Solves Retirement Money's Biggest HeadacheThis simple, three-zone system (Blue for bills, Green for paycheck, Red for growth) helps you organize your retirement savings by purpose and time.
-
No, AI Can't Plan Your Retirement: This Adviser Explains WhyAI has infinite uses. But creating an accurate retirement strategy based on your unique goals is one place where its possibilities seem lacking.
-
What Not to Do After Inheriting Wealth: 4 Mistakes That Could Cost You Everything
Gen X and Millennials are expected to receive trillions of dollars in inheritance. Unless it's managed properly, the money could slip through their fingers.
-
'The Money Prism' Solves Retirement Money's Biggest Headache: Here's How
This simple, three-zone system (Blue for bills, Green for paycheck, Red for growth) helps you organize your retirement savings by purpose and time.
-
No, AI Can't Plan Your Retirement: This (Human) Investment Adviser Explains Why
AI has infinite uses. But creating an accurate retirement strategy based on your unique goals is one place where its possibilities seem lacking.
-
Don't Let a 60/40 Portfolio Derail Your Retirement: Why a Cookie-Cutter Approach Could Cost YouChoosing a personalized retirement investment plan, rather than relying on the 60/40 portfolio, could help protect your savings and ensure long-term growth.
-
Are You Winging Your Retirement Plan? A Wealth Adviser's Tips to Help Build Wealth and Navigate RiskIf you have no strategy tying together your accounts or haven't modeled scenarios to make sure your savings will last, then your plan is probably inefficient.
-
Divide and Conquer: Your Annual Financial Plan Made Easy, Courtesy of a Financial AdviserOverwhelmed by your financial to-do list? Split it into four quarters and assign each one goals that connect to the time of year. It could be life-changing.
-
High-Income But Low Confidence? This 5-Point Plan From a Financial Planner Can Fix ThatHigh earners can still feel they're on shaky ground financially. Rebuild your confidence with a plan that understands your present and protects your future.
-
Your Post-Accident Survival Guide, From an Insurance ExpertAfter a car accident, stay calm and document everything to preserve the facts. Remember: You don't have to solve the problem — that's why you have insurance.
