Separating Emotion From Your Investments
When the markets are up, we feel happy, excited, hopeful. When the markets are down the negative feelings set in. And those feelings can loom large.
The emotions we are all feeling, the concern and the worry, are a normal part of human behavior. In fact, the pain we feel from a loss is two times greater than the joy we experience from a gain, so it’s natural that market losses elicit a greater response.
Market corrections or periods of uncertainty are, in fact, harder to deal with. As human beings, we’re wired to give greater weight to recent events than we are to long term trends. After all, early humanity was concerned about what a predator was doing at any given moment, not what that predator might have done in the past. Lessons that past market corrections have taught us may be valuable, but they’re quickly swept aside when faced with the here and now.
The key is not to act or react when we’re feeling these emotions.
It’s important to know that what markets are doing is normal. Ups and downs are part of the investing experience and the ebb and flow is how markets behave over short periods of time. Remember: The markets have historically rewarded investors who have a plan and remain disciplined through times of uncertainty.