Emotions and Investing

A recent Morningstar article listed 20 common investing mistakes and boiled them down to two main categories:



  1. Letting emotions get the better of you
  2. Not building a plan

It’s interesting to me that the second, not building a plan, is probably the biggest reason people suffer from the first. That said, it doesn’t completely remove the way we feel, especially when markets are volatile. I remember working with clients in 2008 when the market was down 40%, and people felt that we were on the verge of market collapse. Telling people in that moment to stick to a strategy may be the right advice, but it doesn’t mean our emotions agree. Now we can look back 7 years since the market bottomed in 2009 (with the S&P index currently over 2,000 from the ’09 low of 676) and see that buying instead of selling would have been a far more profitable move; however, hindsight is 20/20.
The chart illustrated below tends to show that as investors, our emotions often lead us to want to do the wrong thing at the wrong time.


Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Rancho Bernardo Financial Planner