A successful investment journey may not be possible if human emotions overtake the professional approach of managing money. Investment decisions driven by emotions lead to difficulties in attaining long term financial goals. Thus it is of utmost importance to have control on your emotions while deciding your investments. A wrong decision can put entire investment planning at risk.
The two biggest risk to investments often come in the form of ‘Fear’ and ‘Greed’. Simply put, when there is correction in the market, instead of buying more, investors tend to exit from the market fearing losses in their portfolio. And when market is rising and valuations become expensive, investors tend to buy more anticipating further rise in the market. It is important to remember that in an investment journey, more than half the job is done if you can keep emotions at bay when it comes to investments.
Here are few ways to keep emotions out especially during volatile markets:
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- Stay focused on the Goals : Every investment has a purpose. A continuous focus on purpose of a financial goal will help you from unnecessary emotions and will help to yield desired results.
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Think Long-term : Most often financial goals tend to be long term in nature ranging from 5 years to 30 years. During this timeframe, there would be several market cycles (Bull, Bear & Sideways). True short term volatility or market correction will have an impact on the portfolio but they all are temporary in nature. Learn to use market corrections or volatility to your advantage and use them as opportunities to accumulate more units at lower costs. It is such investments that lead to exponential wealth creation.
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Be Disciplined : Discipline is a vital factor for successful investments. A continuous focus on your goals not only makes you regular and systematic but instils discipline.
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Have Patience : At times, markets do frustrate investors by delivering flat returns for 3-4 years at a stretch. Such phases truly test investors’ patience. At this stage they are often tempted to reorganize their portfolio because they feel their investments are not generating enough returns. Such impatient behaviour will do more harm and keep them away from long term benefits. Patience is the key to successful investing. It is also the hardest aspect for majority investors.
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Asset Allocation : A diversified investment portfolio with exposure to several asset classes through asset allocation strategy is one of the best investment tools for a successful investment journey.
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To conclude, emotions and finance do not go together, so one should not let emotions affect their investment.