Information vs. instinct. When it comes to investing, many people believe they have a “gift” for choosing good investments. But what exactly is that “gift” based on? The truth is, the choices we make with our assets can be strongly influenced by factors, many of them emotional, that we may not even be aware of.
Investing involves risks. Remember that investment decisions should be based on your own goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate, as market conditions change. When sold, investments may be worth more or less than their original cost.
Excitement and fear of missing out. You’ve heard the whispers, the “next greatest thing” is out there, and you can get on board, but only if you hurry. Sound familiar? The thought of being on the ground floor of the next big thing can be thrilling. But while there really are great new opportunities out there once in a while, those “hot new investments” can often go south quickly. Jumping on board without all the information can be a mistake. A disciplined investor may turn away from spur-of-the-moment trends and seek out solid, proven investments with consistent returns.
Risky business. Many people claim not to be risk-takers, but that isn’t always the case. Most disciplined investors aren’t reluctant to take a risk. But they will attempt to manage losses. By keeping your final goals in mind as you weigh both the potential gain and potential loss, you may be able to better assess what risks you are prepared to take.
No crystal ball. Some investors attempt to predict the future based on the past. As we all know, just because a stock rose yesterday, that doesn’t mean it will rise again today. In fact, performance does not guarantee future results.
The gut-driven investor. Some investors tend to pull out of investments the moment they lose money and reinvest only when they feel “driven” to do so. While they may do some research, ultimately, they act on impulse. This method of investing may result in losses.
Eliminating emotion. Major events, including births, marriages, or deaths, drive many investors to make moves with their money. They seem to get a renewed interest in their stocks and/or begin to second-guess the effectiveness of their long-term strategies. An experienced and knowledgeable financial professional can help investors manage their impulses and prioritize their long-term objectives.
