Don’t Let Emotions Control Your Investing

When financial markets experience ups and downs it can be worrying for investors, which can lead to investing mistakes.

Having an understanding of the role emotions play when investing can help you avoid making decisions based on feelings.

It’s been a difficult year so far for investors, with equity markets falling amid soaring inflation, rising interest rates and the war in Ukraine. The S&P 500 posted its worst first half of the year since 1970, while other major indices have also dropped sharply. With global economic growth slowing, there are now fears we could see major economies slip into recession. The good news is that markets have started to make a tentative recovery, although they are still well below where they were last year and uncertainty remains high.

When markets fall it’s easy to act on emotions, especially if money is on the line. For many investors, their portfolio represents their hard-earned savings over many years and/or impacts the lifestyle they might have in retirement, for example. As a result, a lot of emotion tends to be tied to the value of investors’ portfolios.

Acting on these emotions, however, can lead to poor investment decisions that could end up backfiring. If you want to capture the best returns over the long term, you need to park your emotions and stick to the plan set out by your financial adviser. Understanding how emotions affect your investment decisions can stop you making mistakes, helping to secure your longterm financial future.