The recent market volatility can be unsettling to the most seasoned investors. While emotions can run high during these unpredictable times, some investors may make the mistake of making decisions based on emotion rather than fact. This is what we call emotional bias. Everyone has biases and people make many life decisions based on them. Emotional bias can also guide your investment behavioural patterns if you are not careful. Here are some examples of emotional bias when it comes to investing. Do any of these thoughts sound familiar? I have to adjust my portfolio or I am going to lose my shirt in this market. That did not work 5 years ago so it will not be a good idea now. I have an edge over others. I know the industry I am investing in.
The truth of the matter is making decisions based on emotional bias can be detrimental to your financial planning. So, what can you do during volatile times: 1. Stay on Track The markets rise and fall and will continue to do so. You have put a plan together for a reason. It was designed to help you build your wealth and live the life you want to live so do not get caught up in short term activity. 2. Look Forward, Not Backward Past events do not impact future events so do not let something negative or positive about your past investments alter your future investment strategy. 3. Avoid Making Assumptions The market has let down the most experienced investors. Experience does not always mean you can predict the market. 4. Limit Emotional Triggers It is easy to get caught up in negative headlines and bad news. Focus on the facts - logic and historical trends. Please feel free to contact me if you have any questions about your investment strategy.