When financial markets experience ups and downs it can be worrying for investors, which can lead to investing mistakes. Having an understanding of the role emotions play when investing can help you avoid making decisions based on feelings.
Figure 1: The cycle of investor emotions
It’s when you feel most discouraged about your investments that you have the most to gain
A difficult year for investing
It’s been a difficult year so far for investors, with equity markets falling amid soaring inflation, rising interest rates and the war in Ukraine. The S&P 500 posted its worst first half of the year since 1970, while other major indices have also dropped sharply. With global economic growth slowing, there are now fears we could see major economies slip into recession. The good news is that markets have started to make a tentative recovery, although they are still well below where they were last year and uncertainty remains high.
When markets fall it’s easy to act on emotions, especially if money is on the line. For many investors, their portfolio represents their hard-earned savings over many years and/or impacts the lifestyle they might have in retirement, for example. As a result, a lot of emotion tends to be tied to the value of investors’ portfolios.
Acting on these emotions, however, can lead to poor investment decisions that could end up backfiring. If you want to capture the best returns over the long term, you need to park your emotions and stick to the plan set out by your financial adviser.
Understanding how emotions affect your investment decisions can stop you making mistakes, helping to secure your long-term financial future.
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As always, the best thing to do when you are feeling nervous about your portfolio is to stay calm and speak to Richard, James or Nathan who will be able to assess your portfolio against your long-term objectives.
Issued by Omnis Investments Limited. This update reflects the views of Omnis at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance.