No one can control the stock market or tell how an investment will perform. This lack of control can lead to making poor investing decisions like not diversifying, moving in and out of the market at the wrong time, chasing performance etc. These kinds of behaviors can cause problem due to which it will be difficult to achieve long term goals. Taking emotional decisions for your financial investments can be highly devastating as emotional investments are short-term choices, which affects the long-term benefits.
Generally, people think that market fluctuations cause problems, but in fact it’s our reaction to these fluctuations that creates a problem. Therefore it is important to have a financial advisor by your side so that they can help you in your investment strategy.
Emotional investing can be avoided in following ways:
Strategic financial plan
It is important to have a strategic financial plan ready which will help you in taking your investment decisions. This plan must include your financial goals which will help you to achieve long term goals. It might happen sometimes that you may hear something good/bad about investment on the various media channels, at that time one must not get swayed by all this news and take short term decisions will affect your long term goals. Thus it is important to make a strategic financial plan.
Herd Mentality
Investors often fall and react to what we know as Herd Mentality. It has happen very often that when an investor get news about the rise in price of certain stocks they invest more in that stock thinking that the price will rise in the future. Thus investors must avoid falling into this trap, and understand why you want to purchase these stocks.
Taking help of financial advisor
If you usually take emotional investment decisions, it is better that you take help of financial advisor. A financial adviser can help you to take accurate decisions and can guide you about when and where to invest. He/she may study your long-term financial goals and help you to arrange your portfolio accordingly. He/she will guide you by telling what kind of investments you should make and when to sell them according to the market conditions.
Fear and anxiety
Many people like to pull out of the market when the conditions do not seem good due to emotions of fear and anxiety. They sell their investments when they hear bad news. This is okay if you have allocated assets to short-term investments. However, if you wait for the right time, you will get huge benefits on your long-term investments. One should not pull out of market just because of hearing bad news about it. There have been some instances in past that when the market was crashed many people sold their stocks but after few years the stocks were performing well.
Calculate risk
An investment cannot be completely risk free. The investor must understand how much risk is involved in his/her investment. Before investing the investor must calculate the risk involved in an investment. He/she must consult a financial adviser who can guide them while making an investment. Just because someone tells that if the risks are high revenue is high, do not invest without doing a proper research.
Market research
Whenever you start getting positive or negative emotions regarding an investment, acknowledge them. The investors must avoid making decisions based on these emotions. The investor must try to recollect its investment mistakes which they have committed in the past due to emotional outburst. To overcome this investors must gain knowledge about the investment, do market research and must see whether they are satisfied with the results or not.
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