Emotional Investment Behavior
Studies have recently come to show that investors over the last 30
years have been very emotional, pulling out of the market right when
they should have stayed in, and going into the market right when they
should have held out. As they tracked those who had a systematic
approach where emotions played no part of it, the decisions were based
on a strategy that was in writing, rules that were to be adhered to,
over this long period of time they received about an 8% gain on their
money per year. Whereas those that were managing their funds, looking
at different reports, and emotionally involved, making decisions on
emotion not on rules they established, actually got half that, a 4%
return, clearly indicating that we have tremendous value in having a
system, rules, things that actually help us to control our emotions so
that we can make good decisions, and make them prior to when we have
emotions running rampant.
In
relationship to our spending, which we've purported Money Mastery for
many years, is to prepare your spending plan for the future and stay to
it. Track it, compare, and check your emotion back at the door so that
when you're right in the middle of your spending, you've already
prescribed what it is that you are going to spend it on and why and
when, rather than willy nilly. We find that this emotional spending and
emotions play a huge part in whether we're successful with our money
and/or our investments.