Phew. It’s been an emotional 12 months (understatement of the century).
Unfortunately, emotions are the enemy of responsible saving and investing. Yes, even more so than online deals and the holidays! A good rule of thumb is to be aware of your emotions and measure them, perhaps steering clear of big decisions when it comes to one’s money during emotionally taxing times.
By understanding your reaction to stresses, you gain a better perspective on how and why you might be investing the way that you do, and help you might need. Many fall into one of a handful of categories.
Just some of them include:
- Using recency bias: this is when higher importance is placed on the most recent “thing” to happen, be it in your life, at work or even in the news. Thinking only of “the now” and “in the now” may cause you to act fast without thinking of all sides or reasons to do (or not do) something.
- Letting ego guide the way: sometimes called the overconfidence bias, this is when we make decisions assuming we automatically know best versus consulting others or considering other ways of thinking.
- Action through stress: In times of great stress – maybe market fluctuation – it is tempting to pull the trigger just “to do something” before it is too late, often without considering the benefits of staying the course or other courses of action.
- Straight fear: while we all have an aversion to losses, having intense fear over it can cloud one’s judgement in a myriad ways.