You might listen to the news over breakfast and hear yet another economic reporter talking about how markets have dropped (or spiked) overnight - what can feel like a rollercoaster ride is called 'market volatility'.
With volatility comes the emotional aspect, where it’s easy to get excited about riding the wave of a market upswing, but also worrying when markets drop.
Decisions on what to do with your money should be made based on rational information - using our heads, not our hearts. The trouble is, too many Australians let their emotions take over.
One in two people let emotions drive their investment decisions
Would you sell your investments because you’re scared that the market has dropped? Would you buy because you’re worried that’ll you’ll miss out or even excited that the market has spiked again?
A global survey of investors found 55% of Australians say their emotions are either the major or only influence when it comes to making investment decisions. A further 34% say emotions have a ‘medium’ level of influence on their investment choices.
Only one in ten (11%) of us keep our emotions separate from investing.
The dangers of emotional investing
Allowing investment decisions to be guided by emotions brings a whole new set of risks.
One study found that if we set goals when we’re feeling down, it’s more likely that we’ll set very low targets. Conversely, investing when we’re feeling upbeat can lead to rash decisions.
Emotions can play a part in what you do with your investments, where it might mean you sell out of something at a low or buy at a high. This could mean making investment choices that aren’t necessarily guided by a strategy, but your heart.