Why Managing Your Emotions is More Important Than Managing Your Investments
- Brian Page
- Apr 2
- 3 min read
There's a lot of volatility in the stock market right now. The daunting daily headlines of economists cutting GDP growth projections due to President Trump's tariffs might make you feel like the stock market is the wrong place for your money right now.
Managing our emotions is crucial, not just in our relationships but also when it comes to investing.
Here's why mastering your emotions could be the key to successful investing.
1. Manage Investor Behavior First
It’s tempting to react quickly to market news. Panic-selling when the market dips or impulsively buying when it peaks are common traps.
However, research shows that 31% of investors who sell out of fear during downturns never return to the market.
This decision can severely harm their long-term wealth accumulation. Mastering your emotions and resisting the urge to make fear-based decisions is crucial. Instead of aiming for perfect timing or picking winners, which is largely based on luck, focus on controlling what you can: your reactions.
2. Stick to an Investing Plan
My wife and I have constructed a retirement plan with our financial planner that outlines our financial goals and strategies to achieve them. This isn’t just a piece of paper; it’s our roadmap to financial stability. A disciplined plan helps us stick to our long-term objectives and avoid making impulsive decisions based on market fluctuations.
Research supports this approach, indicating that disciplined planning often outperforms reactive investing. It’s about consistency and staying the course, not reacting to every market whisper.
Our portfolio includes international index funds, which, as you can see below, is of particular importance right now.
As I shared earlier, we rotated out of the American stock market in February, and are investing in international index funds and bonds. For where we are in our lives, it's time to become more conservative.
I want to reiterate that what we're doing is based on our shared goals, risk tolerance, time horizon, and diversification strategy. Everyone is different, and it's up to you to meet with your financial planner to discuss a strategy that fits your situation.
Related: Peace Out, American Stock Market
3. Beware of Epistemic Trespass
In today’s information age, it’s easy to come across financial advice from individuals who are experts in one field but novices in another. This phenomenon, known as epistemic trespass, can be misleading.
The Dunning-Kruger Effect explains that individuals with limited knowledge in a domain may overestimate their understanding, leading them to make poor decisions. It’s vital to be skeptical of financial advice from those who are not qualified financial experts, especially when these individuals make confident predictions about the market.
Finally, it's essential to understand the concepts behind different investment strategies.
For example, while dollar-cost averaging provides psychological comfort, lump-sum investing outperforms dollar-cost averaging 66% of the time. Understanding these strategies and choosing the right one for you is crucial and should be based on knowledge, not just comfort.
Related: How to Choose a Financial Planner
Wrapping it Up
For busy dual-career couples, managing investments must go hand-in-hand with conversations about your goals and managing your emotions. By staying disciplined, adhering to our investment plan, and being cautious about where we get our advice, we can avoid common pitfalls and work towards a financially stable future.
I do not provide specific investment advice, but I do support couples who want to better manage money or the home as a team in your marriage.
Click here to learn more about me and how I can help.