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3 Timely Reminders During Market Volatility
Written by Judy McKinnon | Published on March 3, 2020
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Let's face it, investing can be a roller coaster of emotions. Heck, even the Wealthy Barber says so!
When it comes to decision-making, though, letting our emotions lead the way usually isn't the wisest move.
"Emotions can hijack your investment decisions," says RBC Behavioural Economics expert Michael Sherman. "While we all tend to be emotional about money, we're far better off when we approach long-term investment strategy from a cool and rational perspective. Letting emotions influence our investing decisions can often lead us astray and can result in decisions we'll regret in the long term."
Keeping Emotions in Check
How do we keep emotions out of our investing decisions? Here are three things to consider when markets are volatile:
1. Stick to the plan. Whatever that plan is, you put it in place for a reason. It should be your guiding light to help you reach your goals. This can be particularly useful when markets take a turn for the worse. As Sherman points out, fluctuations are an integral part of the mechanics of markets — and assuming your investment strategy is right for you, you should be able to rest easier as markets run their course during turbulent times.
2. Look at how often you're looking. Portfolio monitoring is a key part of investing in order to keep track of what's happening with our investments. And staying engaged is definitely important. Find the right monitoring schedule for you – maybe it's daily, maybe weekly, monthly, etc. Sherman says sometimes, though, the behavioural economics adage coined by psychologist Daniel Kahneman can apply here: "Nothing in life is as important as you think it is while you are thinking about it."
3. Losing hurts. Seems like an obvious statement, but if we can keep in mind the concept of loss aversion, which is the theory that losses hurt far more than the enjoyment we get from gains of equal value, it may help keep knee-jerk reactions in check during volatile markets.
In short, doing the research, knowing yourself and sticking to that plan you came up with can all help keep your emotions from getting the best of you.
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