Beware of Emotional Investing

By Ben Hoy, Financial Advisor

“Be fearful when others are greedy, and be greedy when others are fearful.”  When Warren Buffet said this, it would seem that he was referring to the impact that emotions can have on investing.  Have you ever noticed that the state of the market cycle has impacted you emotionally?  It’s easy to say “buy low, sell high” but it’s another thing to live by it.  Investors have struggled with this idea for years.  Investing can go against our natural instincts.  Have you ever noticed that market highs are not breaking news?  Oftentimes, the media mirrors our emotions and by doing so – heightens them.  When the market is doing well there isn’t much to report.  It’s doing what it usually does and most of the time it isn’t that exciting.  But what if we see a downturn?  Now the alarm bells start ringing.  It can be difficult to ignore.  At these times it is very important to know that these ups and downs are expected and your long-term financial plan accounts for them – or if not, it should.

Let’s take a look at the cycle of emotions as they pertain to the market conditions.  This exercise can help us identify where we are currently and be ready for the inevitable next phase of the rollercoaster.  The key, of course, is to remember that true long-term investors will experience many of these ups and downs over their investing lifetime.  With the Dow Jones Industrial Average near all-time highs, you very well could look at your 401 (K) or IRA and be in a euphoric state.  Chances are that you have never had as much wealth in your entire life than you have right now.  It’s an exciting feeling and it’s well deserved.  You’ve done a great job and should feel a sense of pride in your accomplishment – but let’s not forget that we are at the point where the rollercoaster is flying high.  Years ago, a mentor shared some advice with me that I use all the time.  She said “Don’t let yourself get too high in the good times or too low in the bad times.”  This is great advice for every aspect of life regardless of the situation.  It applies to your career, your family, your marriage, as well as your financial strategy.  I have found that if you keep things in perspective during those good times – it’s much easier to do the same during the bad times.  Try to remember this when checking your account balances.

Being Prepared Can Limit the Emotional Highs and Lows

The emotions that follow euphoria are anxiety, denial and then fear which eventually leads to panic.  We need look no further than March 2020, for a prime example.  What did you do?  Some investors feared the worst and moved to cash.  Many people typically know that selling low is not the best course of action, but they let their emotions get the best of them.  As we now know, those who sold missed a huge rebound.  You may also remember how the rebound felt.  Hope, relief, optimism.  Then maybe even excitement and back to euphoria!  It’s called a cycle for a reason – and the more that you are prepared for it the more that you can limit your emotional highs and lows.

As Financial Advisors, we are often called upon to provide emotional support during the tough times and we are happy to do it.  This is one of the most important services a financial advisor can provide as emotional investing is one of the main reasons why individual investors underperform.  We put a plan in place that is designed to meet goals based on a client’s specific time horizons.  We also determine the level of risk an individual is comfortable with and then we allocate the investments to aim to achieve an expected average return.  Developing a relationship with an advisor who understands what’s most important to you will allow you to maintain an investment strategy that will give you the confidence to trust the process even in those times of emotional uncertainty.

Morey & Quinn Wealth Partners

Raymond James® LIFE WELL PLANNED.
Phone: 402.502.9900
Toll Free: 877.541.6593
11225 Davenport St, Suite 109
Omaha, NE 68154

Any opinions are those of Ben Hoy, and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance does not guarantee future results.

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