3 ways to keep emotions in check when investing
(NC) Although we may not like to admit it, emotions can often get the better of us when making (or not making) investment decisions. Perhaps you get caught up in the buzz of what your friends or family members are doing — but this might not put you on the fast track to financial success.
“Emotions can hijack your investment decisions,” explains Michael Sherman, RBC behavioural economics expert. “While we all tend to be emotional about money, we’re far better off when we approach a long-term investment strategy from a cool and rational perspective.”
Tales of overnight success thanks to a hot investment can make it seem like a great idea to jump on the bandwagon. The same goes for getting caught in panic mode and perhaps selling prematurely when markets turn. So, just how can you keep emotions out of your investing decisions?
Here are three considerations.
- Make a plan and stick to it. A plan will be your guiding light to help you reach your long- or short-term goals. Having an investment strategy that’s right for you can let you rest easier as market fluctuations run their course.
- Look at how often you’re checking your portfolio. Monitoring is a key part of investing to keep track of what’s happening. So find the right monitoring schedule for you, whether that’s daily, weekly or monthly.
- Losing hurts. Understanding the concept of loss aversion – the theory that losses hurt far more than the enjoyment we get from gains of equal value – can help keep emotional reactions in check during volatile markets.
In short, do your research, know yourself, and stick to your plan to help keep your emotions from overpowering your rational thought process. Find more investing inspiration at rbcdirectinvesting.com.