3 Tips to Keep Emotions From Causing Investing Mistakes

Markets are always rising and falling. News is always breaking. And investors are always fretting. Now's the time to take a breath, check your plan and calm those worries.

(Image credit: Dougal Waters Photography Ltd.)

Often, being a financial adviser is as much about wrangling client emotions as it is about managing money.

Thanks to a 24/7 news cycle, every event, great or small, seems to bring a fresh wave of worry. Investors get caught up in the headlines of the day — political uncertainty, global unrest and a near-constant stream of economic updates — and they want to know what it means for their portfolios.

For those who are close to retirement — or already there — it feels especially intimidating. Protecting their money is a priority, and they often try to predict what the market will do — or let someone do it for them.

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All this short-term commotion generally means very little. While stocks have been on a record roll, at some point, the market will go down — that’s what it does. But no one can say when it will happen or how far it will drop. You should plan for the possibility, but not in a panic. Because that’s a surefire way to lose money.

Or, as retired Magellan Fund manager Peter Lynch once said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

Don’t let your emotions get the better of you when it comes to investing.

1. Be patient

Instead of investing in reaction to the news, stick to what feels like a good fit for you. You should have a plan in place that’s built to match your needs, goals and ability to handle risk (both financially and emotionally). If you don’t have a written plan, go get one. If you do and you’re still uneasy, talk to your adviser about getting a review, or go for a second opinion. It might be time to re-evaluate your risk tolerance. But don’t lose confidence in carefully structured strategies built for the long term based on one day’s events or the ranting of one TV talking head.

2. Tune out the noise

Or at least turn it down. What’s happening in the moment (think about the election, for example, or Brexit) often seems earth-shattering — and there may be volatility for a few days. But when you look at things over the long term, the picture changes. I’m not saying you shouldn’t pay attention to what’s going on with your investments; you just don’t need to look at what’s happening to them every day. And you can’t automatically assume your investments will be affected by a particular news event.

If you see a change that makes you anxious — something fundamentally different about the way a specific investment is performing, a scandal or a management upheaval, for example — talk to your adviser about your concerns.

3. Be realistic

Rather than trying to time the ups and downs of the market, embrace them. If you have some cash available and there’s a pullback or downturn, you can use it to buy at a bargain rate. Just be sure you have other safe investments — and the time and patience to wait for a rebound. The market never goes up forever, but it doesn’t stay down forever, either. Just look at what’s happened to your portfolio since 2008.

If you find yourself fretting about the future more than you’d like, talk to a financial adviser. Besides setting you up with a plan based on your tolerance for risk, he or she can help you sort through the media hype and separate the rumors from reality.

Kim Franke-Folstad contributed to this article.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Dan Webster, Registered Financial Consultant
Co-Founder, Fusion Capital

Dan Webster originally hails from Rochester, N.Y., and currently resides in Pawleys Island, S.C. He is a Registered Financial Consultant and is a member of the International Association of Registered Financial Consultants and the Financial Planning Association.