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Pattie Lovett-Reid

Chief Financial Commentator, CTV


This past period of market volatility has taught us a big lesson: When you least expect it, an event can unfold that is beyond your control, causing markets to stumble or soar.

This can leave investors feeling like their financial future is out of their hands. However, we have a lot more control than we give ourselves credit for.

For example, we don’t have to spend frivolously, taking on more and more debt with never-ending payments. We also don’t have to overspend on buying a home and then turning it into a piggy bank, or deciding by choice to live paycheque to paycheque. Another big mistake is allowing emotions, rather than discipline, dictate our investment decisions.

Over the years, I’ve seen all too often how missteps can torpedo an individual’s financial plan, leading investors to buy high and sell low:

  1. Failing to diversify. You know you need to but often neglect to do so. Have a look at your portfolio to see where you are over-exposed to one sector, one country, one currency or one company. If you own more than one mutual fund, look for duplications in the top 10 holdings.
  2. Herd mentality. No one wants to be the last person holding a stock but following the crowd can lead to unfavourable outcomes. Some may not even look into a reason for selling, and while the crowd might be right, you could still be wrong given your time horizon and tolerance for risk. Just because everyone else is doing it doesn’t mean you should be doing it too.
  3. Loss aversion. No one likes to lose money and everyone likes a high rate of return. Given the lack of volatility over the past two years and feeling of complacency in the market, many have taken on more risk than they should have. The reverse could also be true: Sitting in cash or near-cash equivalents could result in missed opportunities to grow your money.
  4. Stop reacting to every piece of news that comes across the wires. The risk of doing so can lead to fear or greed or both. Fundamentals and discipline rule the day.

We really do have a lot more control over our financial situation than we believe. Great fortunes have been lost and hard-earned gains destroyed when financial blunders rule your money decisions.

The bottom line is, emotional money decisions are almost always costly money decisions.