Money is always an emotional subject, but often when our emotions get involved with our investments we will make wrong decisions. And that can be a costly mistake. Keeping emotions and investing separate seems almost impossible for many investors. When reacting too quickly and letting emotions cloud judgment, even the most professional and experienced investors do not make the best decisions. However, keeping emotions away from investment decisions can give you a better chance for success.
Here are four tips on how to keep emotions and investing separate:
1. Set financial goals. Setting financial goals is the first step to investing, and financial goals can keep emotions out of the picture if done correctly. Having a plan will help you keep an eye on the big picture. For example, if you are saving for retirement in 20 years, you know that you have more time to make up for any losses than if you plan to retire in 10 years. These goals can also keep you focused on what you need to do today to get there.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Fight the urge to check performance too often. You might be someone who has the urge to check up on your investments every day, possibly for hours. In doing so, you will see more of the market gyrations than if you check monthly or quarterly. Checking so constantly will not benefit your portfolio in any way, but it may just cause more anxiety. This is even more important if you own individual stocks or mutual funds in any kind of personal account or retirement account. Checking these holdings too often can cause you to panic, and you might make a snap judgment trade. Instead, keep your checks to monthly or quarterly, and concentrate on sticking to your overall plan.
3. Know the objectives and risks in what you buy. Knowing what you are buying is crucial to help you avoid emotional setbacks in investing. Always do your own research before purchasing anything, even if you have outside assistance. Understand what the investment is, how it will help you achieve your goal, what the risks are, and when and how to exit. Without your own research, you will not take full responsibility for your trades, introducing negative emotions.
4. Assign a professional buffer zone. You can create some distance between yourself and your investments by putting a financial professional in the middle of the two. Entrusting a neutral third party who can help you examine your situation dispassionately and encourage you to stay on track, you can hold yourself more accountable for the things that you can actually control.
Did you know? From the small purchase decisions to the large financial plans, it often helps to write things down. Then, you can examine how you come to decisions — which should lead you to make better ones.
-
The AI Doctor Coming to Read Your Test ResultsThe Kiplinger Letter There’s big opportunity for AI tools that analyze CAT scans, MRIs and other medical images. But there are also big challenges that human clinicians and tech companies will have to overcome.
-
The Best Places for LGBTQ People to Retire AbroadLGBTQ people can safely retire abroad, but they must know a country’s laws and level of support — going beyond the usual retirement considerations.
-
Financial Planning's Paradox: Balancing Riches and True WealthWhile enough money is important for financial security, it does not guarantee fulfillment. How can retirees and financial advisers keep their eye on the ball?
-
A Confident Retirement Starts With These Four StrategiesWork your way around income gaps, tax gaffes and Social Security insecurity with some thoughtful planning and analysis.
-
Should You Still Wait Until 70 to Claim Social Security?Delaying Social Security until age 70 will increase your benefits. But with shortages ahead, and talk of cuts, is there a case for claiming sooner?
-
Retirement Planning for Couples: How to Plan to Be So Happy TogetherPlanning for retirement as a couple is a team sport that takes open communication, thoughtful planning and a solid financial strategy.
-
Market Turmoil: What History Tells Us About Current VolatilityThis up-and-down uncertainty is nerve-racking, but a look back at previous downturns shows that the markets are resilient. Here's how to ride out the turmoil.
-
Home Insurance: How to Cut Costs Without Losing CoverageNatural disasters are causing home insurance premiums to soar, but don't risk dropping your coverage completely when there are ways to keep costs down.
-
Markets Roller Coaster: Resist the Urge to Make Big ChangesYou could do more harm than good if you react emotionally to volatility. Instead, consider tax-loss harvesting, Roth conversions and how to plan for next time.
-
Why Homeowners Insurance Has Gotten So Very ExpensiveThe home insurance industry is seeing more frequent and bigger claims because of weather, wildfires and other natural disasters.
