Jun 21, 2017
Pattie Lovett-Reid: How to avoid the trap of emotional investing
It is human nature to want to act on instinct alone – but that's not a good thing when it comes to your investments, according to a new survey.
In the survey done for Adam Hennick Wealth Management, 22.7 per cent said they have made an investment decision based on emotion or gut instinct, which they later regretted. Interestingly, men with incomes between $100,000 and $149,000 were most likely to make a poor gut choice (69 per cent).
While we all may get tips, men appear to take the perceived insider advice to heart. Almost twice as many men (13.7 per cent) bought stocks on a hunch than women (7.5 per cent). Sometimes, the desire to act on a hot tip can overwhelm our logic. The feeling of wanting to belong and wanting keep up with your friends is human nature. So if a friend recommends an investment, be sure to do your own homework before acting on it. Be a little discriminating and try to take advice from your friends who have been successful.
Here's the good news: with age comes investing wisdom. Seventy-five per cent of those 55 to 65+ said they have not and would never buy a stock based on a "hunch" without doing research first. In contrast, 32.6 per cent of respondents aged 18-34 said their emotions affects their investment decisions "fairly often" or "frequently."
What now if you are an emotional investor? If you are honest with yourself, you know if you are an emotional investor, says Yashar Khosroshahi, ND and brain-based executive coach, who teamed up with Adam Hennick Wealth Management on the survey. If you are an emotional investor, try to build some road blocks:
1. Conspire to complicate. Train your brain to ask more questions and give yourself a two-hour cooling off period before investing.
2. Write it down. Force yourself to write a 500 essay on the merits on the stock and why you should buy it. If you write up a convincing buy proposal, and still feel the same way the next day, you've done your homework and should go for it.
3. Commit. Buy and hold for a three-to-five year period and resist the urge to watch to check investments so the market fluctuations don't take you on an emotional roller coaster.
