When our emotional brains meet investment… exciting things can happen. The natural responses we have to live – pleasure, fear, and pain – have the potential to impact our decisions and outcomes heavily.
As much as it’s to an investor’s benefit to avoid making emotional decisions, simply turning our emotions off isn’t an option. We must work with them, and the good news is that we have tools to help us.
Fail to plan and you plan to fail
We can be overwhelmed by the excitement of a new opportunity or the terror of a looming recession. In fact, it’s the decisions investors make during these times that are responsible for the vast majority of incidents that lead to bankruptcy.
However, the investor who has taken the time to build themselves an investment strategy – as we covered in the last article – has a plan. With an investment strategy in place, every decision must be evaluated to ensure it fits with the big picture. And much like the mountaineer who is blinded by a snowstorm can relax and trust their compass or GPS, investors caught in emotional times can turn to their strategy document.
Never have all your eggs in one basket
We’ve talked at length about diversification. But it begs to repeat just how useful this tool is.
A well-diversified portfolio contains complementary assets that behave differently in response to market events. Psychologically, this can make the difference between thinking, “My property assets are having a hard time at the moment” and, “Oh my gosh, I hope we don’t lose it all”.
Improve your relationship with your emotions
It’s no secret that many great investors practice yoga. This helps them become conscious of their breathing and recognize when they are starting to act and think impulsively.
In addition, there’s value in using tools like meditation to begin recognizing your thoughts for what they are – assumptions, reactions, and questions. By separating yourself from thoughts and observing them, negative thinking patterns (and their consequences) can be interrupted.
This finishes our long-term investing series. Here’s what to do from here:
- If you’d like to learn the investing fundamentals, sign up for The Masterclass
- Head over to i-vest if you’d like to explore our takes on market events, and the philosophy of investing, and listen to interviews with experts in the financial space.
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Alpian will launch its products and services shortly after its banking license enters into full force and will be available to the public in the third quarter of 2022.