One of the greatest dangers to your wealth may not be the market’s dips and dives, it may be the temptation to make emotionally charged decisions regarding your wealth. As an investor, it’s important to remember what your biggest focus should be: your personal situation and goals. Below is a discussion on the impact behavioral finance can have on your investments and what you can do about it.
What Is Behavioral Finance?
In a perfect world, the stock market would be predictable. Philosophers and economists have studied the markets for decades, even developing theories and models to explain and predict trends and responses in the market. The problem? Money, and the way we interact with it, isn’t black and white. As humans, we typically cannot make objective decisions regarding our own money. Whether we realize it or not, we are influenced by subconscious biases and what we read and hear on the news.
This behavioral bias can help account for unexplainable phenomena in the market, such as the “January effect,” an increase in stock prices that tends to occur at the beginning of the year.
How Behavioral Finance Impacts Your Portfolio
Even the most disciplined investor could have a tough time staying strong during turbulent economic climates. With social media and 24-hour news cycles, no one is immune to hearing about breaking news or troubling trends.
When you hear on the news that the market has plummeted, your first instinct may be to get out immediately. This is a gut reaction, fueled by the short-term fear of a market crash. However, now’s the time to remember the truth about your investments: they’re meant to be a part of your long-term financial goals, not short-term gains.
When in Doubt, Contact Us
To help avoid making impulsive, emotionally charged decisions about your money, contact us. The market is meant to cycle, and using strategic, logistical planning is one way you can stay focused through these uncertain times.
During times of economic uncertainty, remember to keep calm, stay rational and remain informed about your investments. With shifts in the market, decisions should be based on facts and logic, not emotions. If there are changes in your personal situation or your risk tolerance, it may be time to talk and determine whether to reallocate certain assets. If you want to find out if you are still on track for your long-term goals or just want reassurance, contact us. We are here to help you stick to your long-term goals, so you should always feel free to reach out with your concerns and questions.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.