Don’t be a FOMO investor! How can you make investment decisions that aren’t based on your emotions? [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
I personally believe investing is an important activity that will help us achieve both our long-term and short-term financial goals.
For me, this is one of the vehicles that will enable us to experience TRUE financial freedom and build a financially stable future not only for ourselves but also for our families.
How can we invest successfully and properly?
One way is by avoiding emotional investing or investing out of fear, greed, panic, and other intense emotions.
Keep reading to know how emotional investing affects your financial decision-making and learn a few tips to overcome your negative feelings and thoughts.
Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
Some people are hesitant to invest in the stock market because of the fear of financial loss.
Well, it’s true that investing can cause valid and genuine fears for new investors. In fact, even experienced investors get worried at times!
However, you have to keep in mind that fear has negative impacts not only on how you manage your finances but also on how you operate in your everyday life.
So, if you want to be a successful investor, you must make sure your investment decisions aren’t based on your emotions, especially fear.
Emotional Investing or FOMO Investing
FOMO―“fear of missing out”―is a primal emotion that a lot of people are familiar with. It’s not just a stock market term; it applies to almost every aspect of life.
Let’s focus on FOMO in the context of investing for today’s article…
Photo from DailyFX
Many investment experts agree that FOMO is a dangerous thing in the stock market. It can cause you to make reckless investment decisions that can negatively impact your portfolio.
For example: When a stock is rising, you’ll notice that some investors who own that stock are making a killing.
Naturally, the first thing that comes to your mind is, “If they can do it, why can’t I?”
… and so with the fear of missing out on a large return, you jump in and buy that stock. However, when that stock falls, you’re left to deal with the repercussions of buying at a high.
See? That’s why you have to be wary about letting your emotions rule you, especially when making financial decisions. As much as possible, avoid emotional investing!
How can you do that?
- Dollar-cost Averaging
Dollar-cost averaging is a strategy where the same amount of money is invested at a regular, predetermined interval. This interval can be monthly, quarterly, etc.
The key to this strategy is to stay on the course. Don’t tamper with it unless a major change requires revisiting and rebalancing what you’ve already established.
This method works best in 401-K plans with matching benefits because a fixed amount is deducted from each paycheck and sometimes, the employer provides additional contributions.
- Diversification
Diversification is the process of investing in an array of goods, stocks, or bonds rather than in just 1 or 2 securities. This helps diminish an investor’s emotional response to market volatility as it aims to maximize returns by investing in various categories that react differently to a certain event.
Using this strategy also provides an element of protection because losses in some investments are offset by gains in other investments.
- Education
Knowledge is an important asset in investing. Understanding how markets and stocks work helps lessen investors’ fear.
You may further reduce your fear or anxiety by becoming more familiar with the economy and knowing how businesses, investors, and governments influence the stock market.
By studying these aspects, you’ll identify the patterns that happen in the industry. This will help you take control of your emotions when making investing decisions because you know that there’s actually nothing to worry about.
- Simplicity of Approach
Complex investment techniques often require much more work than straightforward ones. So, use a simple approach to prevent you from getting overwhelmed and to keep you on the right track.
Besides, it’s easier to spot issues when your investment strategy is simple. You also won’t worry too much if ever you find a problem with one of your assets because you can easily make adjustments.
- Regular Evaluations
Regularly take a step back to evaluate your goals and what you’re doing to achieve them. Additionally, avoid rushing or pressuring yourself to achieve your financial objectives all at once or as quickly as possible.
Remember: Investing is a marathon, not a sprint.
Avoiding emotional investing or FOMO investing is easier said than done. The good thing is that there are some important considerations that can keep you from chasing futile gains or overselling in panic.
Additionally, understanding your own risk tolerance and the risks of your investments helps in making rational financial decisions. Familiarizing yourself with the patterns of the stock market is vital as well.
Take note of these tips as you make a decision to invest in the stock market!
By following a well-defined investment strategy and not letting your emotions rule your financial decisions, you’ll record good investment performances and maximize your returns in the long run.
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
LITERALLY.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
Our goal?
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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