Our emotions play a large role in our investing success. Some emotions hinder. Some emotions help. Identifying the good from the harmful is the first step to improving your investment performance.
Greed. This is a powerful emotion that can lead to very poor financial outcomes. Greed pushes us to take greater risks with our money. Greed causes us to chase after that hot stock that will soon flame out. We throw caution away in order to make that big gain. Sticking to an investment plan can help offset some of the influences of greed.
Fear. This is another difficult emotion to overcome. You would think that fear is the exact opposite of greed. In fact, fear can be the underlying emotion to greed. How is this? We may fear not having enough compared to others; so we push to get as much as we can so that we are not vulnerable. Another form of fear is not investing at all. Investing involves risk. We may be so afraid of losing money that we do not invest at all. However, we may be losing money anyway to inflation and the rising cost of goods. Knowing your risk tolerance and building a portfolio you can stick with can help combat fear.
Confidence. Here is a very good emotion to cultivate. Confidence means you trust yourself and your decisions. You are aware of the risks. You do research to diminish these risks and set a plan to follow. You then trust yourself to follow this plan. The experience that comes from investing can give you confidence. Learning and educating yourself about investments will give you confidence. So take a deep breath and believe in yourself.
Patience. This is an excellent emotion to embrace. Patience allows you to weather the ups and downs that come with investing. It allows you to avoid selling when stocks are down. It reminds you that you have a long term plan for your money. Patience helps you stay the course when investing so you can avoid greed and handle fear.
You canít avoid emotions. After all, emotions are a part of being human. But, emotions do not have to derail your investing success. You can learn to manage them. The more you develop confidence and patience, the less fear and greed will hold you in their grasps. This will allow you to become a more prosperous investor.
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