† Riley, Chuck. Dec. 1, 2023. “The psychology of money and emotion.” Vanguard. Accessed May 23, 2024.
Tips to help avoid emotional investing
Economic ups and downs are part of life, and remaining calm and patient during both swings may work in your best interest. A key to financial success is making and sticking to a plan in good times and bad.
It's easy to get excited or anxious when you realize money you've saved and invested either increases (Yay!) or decreases (Yikes!) because of market fluctuations. Who wouldn't react to the ups and downs? But reacting in a positive manner, especially when it comes to money and emotions, can help you remain calm and maybe even bolster your finances.
Emotional investing and knowledge
It's possible that emotions–heartfelt concern for your family's financial security–spurred you to start saving and investing. But just as important as what to invest in, is remaining invested.
One of the mantras Huntington financial advisors often share is "Be patient." Take your time to evaluate a volatile market and seek guidance from your advisor, who could help ease your anxiety. In fact, some research suggests suggests 40% of an advisor's value is related to their emotional guidance and understanding the psychology of investing†. Advisors can provide this support due to their knowledge and experience with market behavior.
You might be surprised how easy it is to learn the fundamentals of investing. We offer basic guides to saving and investing for a start because the more you know, the easier it might be to handle volatile markets.
Being patient and not making hasty investment moves is a mindset based on knowledge, including the fact that historically patience has been rewarded. While past performance is no guarantee of future results, a good example is the resiliency of the S&P 500, a general reflection of the overall U.S. economy. Since its inception in 1957 through 2023, it has averaged an annual return of 10.26%. And that includes significant 'downs'; down 56.8% from October 2007 to March 2009; down 18% in 2022, but it was able to achieve record highs in 2024.
Basics of investing in four simple ideas
Investing can be a great part of your financial picture if you understand a few key points.
Make a plan, follow the plan
One way to help avoid emotional investing (i.e., making decisions based on the fear of losing money more than logical decisions based on guidance) is to work with your Huntington financial advisor to create an investment plan. Determine your short- and long-term goals and position your investments to help achieve those goals. That might be the easy part. The hard, but important part is to stick with it through market swings.
You may know the phrase, 'If you don't know where you're going, you might end up somewhere else.' The opposite can be true with investments: If you focus on your goals and remain headed in the right direction, you increase your chance of success. Sticking to a solid roadmap could help avoid distractions such as a hot or tumbling stock.
But be open to change
Sticking to your plan is recommended, until it isn't. With the guidance of your advisor, there well may be times when your plan should be revised to better align with your goals and needs. The reasons to alter your plan, especially as you age, can be many:
- Your risk tolerance may decrease
- Your time 'horizon' changes
- Lifestyle circumstances, including job, family dynamics and health may change
- Your goals may change as you age or as you achieve them
A volatile economy and market may seem like a good time to update your portfolio, but trying to time the market is generally not successful. When you realize an investment is heading up or down, take a deep breath and consider your goals and contact your advisor.
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