How Emotions Can Negatively Influence An Investor

Today’s investors are bombarded with so much media. The news is received in seconds via smartphone and other devices, and reactions to the negative media often cause negative results for the investor’s portfolio. All too often, money management is influenced by investor's emotions, emotions that can cause a loss of focus on the financial goals and objectives for both the short-term and the long-term. We believe that patience and discipline are two important attributes that greatly impact the success or failure of an investment strategy.

investor emotions rollercoaster

Sometimes remaining patient and showing discipline can be difficult based on what is happening in the financial market. The Cycle of Market Emotions chart above shows how emotional decision making can impact an investor’s tendency to “buy high” and “sell low.” When the market is experiencing erratic movements, an investor may panic and sell. On the other hand, if the market is at a peak, an investor may feel elated and buy. This kind of emotional behavior can have dramatic consequences on the performance of your portfolio.

Related Reading: Understanding How Your Personal Risk Tolerance Affects Our Investing Strategy

Our approach is to take all the market factors into consideration as we manage your wealth, thoroughly analyzing the financial market conditions to make the best decisions for the overall, stable growth of your plan.

The chart below reflects a 2011 study that found the average investor did substantially worse than major indices from the period of 1992-2011 due to the cost of decisions based on emotions.

The costs of emotions in the financial world

"Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results."

Source of illustrations and study via Loring Ward.

Next Steps...

If you are ready to build a plan for growth driven by strategy and experience rather than gut-feelings and emotions, then schedule a meeting with Justin or another of our team members.