Keep Your Feelings Out of Your Finances: Here's How

A man has his hands over his face and looks scared as he peeks through his fingers.

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published 20 September 2024

As I write this (but perhaps not as you read it), the stock market is hovering around record levels, and many investors are ecstatic as they mentally add up their gains. Perhaps in their exuberance, they think about buying even more shares of the stocks that are performing so well.

Of course, bull markets don’t last forever. And in down times, the opposite happens. Fear and uncertainty rule. Investors pore over their losses as a cloud of doom and gloom settles over them, and the temptation to sell is strong.

These two scenarios have something in common. Too often, investors let their emotions take over, making financial decisions based on the mood of the moment rather than letting facts, data and logic guide their judgment.

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Sadly, emotion, when not corralled, can convince us to do just the opposite of what we should do. Take a drop in the market, for example. We watch as the value of our favorite stock plummets, our nerves become edgy and we think, “I’m losing money. I need to sell and stop the bleeding.”

Unchecked emotion rarely allows us to think, “I really like that stock, and I think it is strong over the long haul. With that low price, this might be a good time to consider buying more shares, so I can reap the rewards when the price goes back up.”

Likewise, when stock prices are rising, it’s easy to get caught up in the excitement that has other investors euphoric. Even if you've reached a personal milestone where it would be a good idea to sell and invest the money in something more secure, the temptation is to hold on, jeopardizing what you have accumulated for retirement.

A good plan can override emotion

Should you completely remove emotion from every financial decision? Perhaps not, and since we’re only human, that may not even be possible or desirable in every case.

For example, people have different levels of risk tolerance and often, how much risk you are willing to take is related to emotions. It might be a bad idea to say you will disregard your emotions when deciding on the amount of risk you take, and then lie awake at night unable to sleep because you are anxious about what the market might do.

Generally, though, it’s prudent to limit the role emotion plays in these decisions. That leads to this question: What can you do to avoid allowing these strong feelings to take control and lead you into questionable decisions that could upend your retirement?

One thing you can do is limit how often you check on your portfolio. Over time, investments will have plenty of ups and plenty of downs. You don’t need to track every single one of them. The fewer times you check, the fewer opportunities there are for your emotions to get the better of you.

Another thing you can do is to have a retirement plan in place that will serve as your touchstone — something that you can refer to when those emotions start stirring. Then you can step back and ask yourself, “Does this decision I’m thinking about fit with my plan? Will it send me too far off the path I set down for achieving my financial goals?”

Sure, retirement plans aren’t perfect and aren’t set in stone. They need adjustments over the years to adapt to changing times and to your specific changing circumstances. But by virtue of having a plan to refer to, you can temper those moments when emotions try to take command and steer you in a dubious direction.

A 'coach' to see you through

But a plan isn’t enough on its own. You also should have a financial professional in your corner who can view the situation objectively as circumstances change. This person will help you avoid getting caught up in the emotions of the moment and assist you in making more thoughtful decisions.

They can coach you through those times of irrational exuberance or overwhelming gloominess and remind you of the importance of staying disciplined.

Everyone can use such assistance, even people with a good head for finances. I liken it to NBA great LeBron James, who, during his career, has enlisted the services of a shooting coach even though he is one of the best professional basketball players of all time. But James also knows that an objective observer can see things he doesn’t or suggest adjustments that he might not have thought about.

A good financial professional can do the same for you, gently nudging the emotions out of the decision-making process so that more rational thoughts prevail.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Securities and advisory services offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA & SIPC, and a registered investment advisor. Dynamic Wealth Strategies and MAS are not affiliated entities.

Disclaimer

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.

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Adam Tau is the co-founder and Wealth Manager at Dynamic Wealth Strategies. He began his financial career on Wall Street just after the 2008 financial crisis. Later, he decided to create an independent practice with his wife and co-founder of Dynamic Wealth Strategies, Rebecca Miller. He has a Bachelor of Science in Psychology from Salisbury University.