Emotions and Investing

The non-professional investor is typically putting hard-earned cash in investments for the sake of receiving a return. Still, they see their investments lose value due to market developments at times. The losses can cause stress and second-guessing. That is, many investors have a relatively low risk tolerance when it comes to investing because losing money is painful.

• Investing based on emotion (greed or fear) is the main reason why so many people are buying at market tops and selling at market bottoms.

• Underestimating risks associated with investments is one reason why investors sometimes make suboptimal decisions based on emotion.

• During periods of market volatility and rising interest rates, investors often move funds from riskier stocks and to lower-risk interest rate securities.

• Dollar-cost averaging and diversification are two approaches that investors can implement to make consistent decisions that are not driven by emotion.

• Staying the course through short-term volatility is often the key to longer-term success as an investor.

Hiring a professional financial advisor can help to alleviate some of the fear and anxiety related to investing.

A diversified portfolio does not assure a profit or protect against loss in a declining market.  Dollar cost averaging will not guarantee a profit, or protect you from loss, but may reduce your average cost per share in a fluctuating market.