Most often fueled by our emotions, the instinct predisposes us to rash financial investments by buying high and selling low. Such tendencies are particularly damaging to financial health as it could push us further from reaching our financial goals. In short, it sharply harms our monetary objectives in the long run.
Staying firm about your investment decisions is a lot of work. But it is important to focus on our goals and avoid emotions.
In this article, we shall emphasize the factors that usually influence us to make an investment based on our emotions, followed by the mantras that can be implied to abstain from the propensity of emotional investment.
4 emotional factors that influence investment decisions
Fear
When it comes to investing, multiple factors can influence how emotionally invested an individual becomes. One of the most prominent factors is fear. When markets are falling, we fear the loss of our investment, usually in the form of paper losses. An investment paper loss occurs when the value of an investment decreases from the original purchase price and happens for various reasons, including changes in the stock market or the company’s financial stability. The paper loss may turn out to be a real loss if you panic and redeem the units.
This fear can impact their decision-making process. You can do the opposite at this point in time. Rather than trying to sell, remain calm, purchase more, and earn benefits from the market once it goes up.
Regret
In the case of investment, we often want immediate results, failing, which may result in regret. For instance, you may be new to this field and, following someone’s advice, decide to invest, after which, if the markets crash or there’s a fall in price, it is completely normal to have regrets about why you invested. Just because we don’t see results immediately doesn’t mean our investment was wrong.
Instead of regretting, the best you can do now is to keep calm and stick to your decision. Be confident enough and patiently wait for a positive outcome. Sometimes it takes time for our investments to pay off. If you are patient and don’t give up, your investments may eventually result in financial gain.
Hope
Our emotions often drive us to panic mode, following which if we push the sell button when the market seems active, we automatically tend to become extra hopeful. But as they say, anything of too much is not good. So this extra hope may drive us to buy multiple shares at a high price and eventually will face the consequences if the markets fall.
Investors should spend wisely and opt for the right investment.
Greed
Success often becomes an addiction once you see the results, but then addiction is not healthy. If your earlier investments gave a good result, it does not mean that you will always get the same level of success. You might buy assets at a high price expecting it to increase further. Driven by greed and the hope to rise, without realising, you may take some steps which may turn fatal.
Remember, there are certain risks while investing in the market. So it’s advisable to think wise before you make the decisions.
Five mantras to keep in mind to avoid emotional investment
✔ Invest in equity mutual funds before investing directly in equities to get familiar with equity investment.
✔ When markets are volatile, keep calm. It’s natural to feel uneasy when the markets fluctuate, but it’s essential to remain calm and remember that volatility is normal.
✔ Long-term investment is the key. It’s crucial to think about the future and not get caught up in short-term gains or losses.
✔ It’s essential to diversify the portfolio to avoid putting all your eggs in one basket.
✔ If you are a new investor, it is advised to seek expert guidance from a financial expert before you invest.
Following these tips, you can avoid emotional investment and make sound decisions.
