Are you an emotional investor? Here’s how to stay disciplined

Research shows more than half of investors have made choices they later regretted. Learn how to stay disciplined if you often make emotional investments.

After a period of market volatility across 2022, your investment portfolio may have seen an overall downturn.

With your investments somewhat under strain due to short-term volatility, and high inflation reflecting a rise in the cost of living, you could be worried about your wealth overall.

Financial stress can lead to all sorts of symptoms, including losing sleep, feeling pessimistic about your life goals, and crucially, making emotionally led decisions you later regret.

As you might already know, the way you spend, save, and invest your money could be linked strongly to your emotional state. You may spend more when you’re under pressure, or even be prompted to over-save if your anxiety takes over.

When it comes to investing, it is essential to take a disciplined, evidence-based approach. Yet when times are tough, it can feel impossible to make rational choices with regards to your wealth.

So, here is how your investment decisions could be dominated by your emotions, and how to remain focused on your goals during difficult times.

Being honest about your emotional relationship to your wealth can help steer you onto a better path

When placed under financial pressure, fear and doubt could begin to creep into your mind. The presence of these emotions can lead you to make rushed choices, especially when it comes to investing.

Indeed, the prevalence of investing apps means we have the power to invest our hard-earned wealth at the touch of a button. But with great power comes great responsibility – and if you know your emotions cloud your judgement when it comes to investing, perhaps a more secure approach is needed to protect your long-term wealth.

If this applies to you, being honest about your relationship with money is the first step towards a more disciplined mindset.

Reaching out to your loved ones, and importantly to financial professionals, can enable you to share the load of your investment choices. Instead of bearing the weight of your portfolio alone, we can help you feel confident in your decisions.

More than half of investors admit to emotional investments they now regret

You might believe that investing is purely a numbers game, but in fact, your personality, feelings, and emotional state can have a huge impact on your portfolio.

Your attitude to risk, for instance, is much more about your emotions than your wealth. Attitude to risk is determined by factors including:

  • How you feel about the possibility of losing significant wealth to higher-risk, potentially higher-reward investments
  • Your attitude and opinion towards typically volatile sectors
  • Your anxiety levels when your portfolio experiences a downswing
  • Your ability to think long term about your portfolio and pay little mind to short-term fluctuations.

Whatever your attitude to risk, it’s vital you understand how your feelings play a part in your investment strategy.

Indeed, if your attitude to risk does not match how your portfolio is designed, this could lead to behaviours including panic-selling investments when they lose value, or buying up risky assets on a whim.

If you’re familiar with these actions, you aren’t alone – a study by Magnify Money found two-thirds of participants had made “emotional investments” they now regret. In fact, emotional investing is a well-research phenomenon – banking group Barclays calls this a “cycle of investor emotions”, with stages including:

  • Reluctance to take any financial risk before you invest
  • Excitement and optimism about seeing profits once you’ve purchased your investment
  • Panic when an investment dips in value
  • Indifference and reluctance to continue investing when the excitement wears off.

You might be thinking: “this sounds exactly like me. What can I do to break the cycle?”

Fortunately, there is something you can do to take a more disciplined approach to investing.

Evidence-led investing can help you stay focused on your goals

Evidence-led investing can help you remain disciplined if you often let your emotions cloud your decision-making.

With the input of your Kellands financial planner, you can invest based on:

  • Market forecasts simulated by state-of-the-art software
  • Cashflow modelling technology that allows you to set long-term financial targets for your investment portfolio
  • The long-term observation of market trends.

Of course, the value of your investment can go down as well as up, and you may not get back the full amount you invested.

Nevertheless, by stopping to consider the above factors before you invest your hard-earned money, you can place your knowledge, and the independent advice you receive, above your emotional whims.

Working with an expert can bring you one step closer to achieving your investment goals

Ultimately, even with all the right research, it’s often challenging to separate your emotions from your investments.

That’s why seeking the advice of a seasoned financial expert with years of industry experience can help bring you one step closer to your life goals.

We know you invest to provide your future self (and the next generation) with opportunities – and we can help bring those to fruition, no matter your emotional relationship with money.

Your Kellands financial planner can:

  • Discuss the emotions you associate with your wealth, be it anxiety, optimism, concern, or excitement
  • Help you learn from previous investing experiences – even those you aren’t proud of
  • Work alongside you to make evidence-led investments from now on
  • Curate a bespoke financial plan that helps you stride confidently towards your goals.

Whether you want to diversify your portfolio, discuss higher-risk investments, cash in some stocks, or alter your time frame, we are here to offer qualified advice.

Get in touch

Want to seamlessly combine your head and your heart when you invest? Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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News & Views

June 4, 2024

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