This strategy may surprise you

Emotions are one of the biggest trigger points that at some point affect just about every investor.  So, how do I keep my emotions out of my own investment decisions.

You may find my answer surprising.

First, you are assuming that I do keep my emotions under control. The reality is that I and no one else can completely control their emotional reactions.

You may be surprised to hear this from someone who has been involved in investing for over 30 years. After all, I’ve been a working in the financial advice space for more than 30 years, and many people rely on me and my firm to look after their investments.

If it’s difficult to manage your emotions, when it comes to investing, what does this mean?

Last time there was a major stock market fall, I’m sure your emotions were put to the test. And so were mine — how could anyone not have been at least somewhat concerned? By the way, this was back in 2008 during the Credit Crunch.

Instead of selling my own investment portfolio and advising my clients to do the same, here’s what we recommended?

In times of trouble and concern it’s important to evaluate what is going on. We looked at the latest economic information available and what was happening to the markets. Taking an analytical approach to the events in the moment is calming, rather than making a knee jerk reaction. The reality is, that there could only be two outcomes. The situation was going to improve, as it has every previous time the markets have fallen, or it was going to get whole lot worse. If that was to have happened, none of us would have been worrying about investments for sure.

Because we focussed on the facts and not our own personal investments, we were able to reduce the chances of us making emotional decisions. If you have ever found yourself in the middle of a crisis, you will always find people in a panic. Our job is not to be one of them.

If we panic, what use are we to our clients?  So, we continue doing our job and we work through the crisis as calmly as possible. Whilst it is virtually impossible to avoid market corrections unless you keep all of your money in cash, there are strategies that investors should be considering to protect their investments.

What is the right investment strategy to follow?

Our strategy is to hold an investment portfolio that is both diversified and strategically rebalanced periodically, whilst always remembering that you invested for the long-term. We need to remain focused on our long-term goals. We can be reassured that the investment management program has been designed this way, to help get us through a crisis. Whilst it is not always possible to keep calm and relax we can be assured that we have the right investment mindset and process in place.

I may not be able to fully control my emotions, but what I do know is that I we need a structure and process to manage them. That is precisely what we encourage our clients to do:  Follow the process. When you get edgy and nervous, don’t sell in haste like many others do.

Call us instead. Part of managing your money is also to help you manage your emotions. That is what we are here for. If we are not helping you manage your money, it is essential to make sure that your adviser does have both a structured investment approach and the right strategies to deal with the difficult times.

If your adviser does not have both of these disciplines, then he or she may just panic as much as you at the first sign of a crisis. And nobody needs two people panicking people in a crisis, when leadership is required to get a good outcome.

Panic everywhere in 2008

Many people went through 2008 either without an adviser or worse still, with one who panicked sold their investments, often at huge losses. So if you are managing your own money or have an ineffective adviser, it may be better to talk to an experienced advisor — one who can be objective in a crisis when you may not be able to.

Our clients hire us because they know we have an investment process not only to manage their money, but also to try and avoid making emotional and sometimes irrational decisions.

Action Call

Are you concerned about your how your investments are being managed? Not sure how to manage your investment in a crisis?

Contact us to today. We can review your current situation and let you know what options are available to you.

If you would like to talk to about financial planning, please get in touch for a no-obligation meeting. Go to our website www.miadvice.co.uk and contact us via our “Get in touch” form on our home page or Contact Martin Dodd on 01902 742221.

Email us at financialplanning@miadvice.co.uk

It is advisable to take advice from a professional financial adviser when making major financial planning decisions.

Check out our other recent articles here

This article has been prepared in good faith and based on Midlands Investment Agency’s understanding of the law and interpretation thereof at the time of creation. The contents should not be regarded as specific advice and we always recommend that specific advice is sort from a qualified professional. No responsibility can be accepted by Martin Dodd or Midlands Investment Agency Ltd., for any loss that may occur by a person acting or refraining from acting on the basis of this article.

 

 

 

Share This