20 January, 2016

Emotional Investing

“During a period of volatility it is all too easy to allow your emotions to dictate your investment decisions”.


Focus on Volatility

Should you abandon your investment plan in these volatile times?

Investing will always involve some level of risk; no one ever knows when the market will turn. History reveals that equity markets usually recover strongly two years after a major crisis.

Emotional Investing: Table 1

Table 1: Despite short-term turmoil, markets historically tend to move higher over time.

Given that timing the market is always difficult, investors generally stand to lose more if they exit the market and stay out while waiting for the turn. In fact, missing the rising tide may cause more damage to their long-term investment plan.

Emotional Investing: Table 2

Table 2: It’s best to stay invested.

During a period of volatility it is all too easy to allow your emotions to dictate your investment decisions. To enjoy the potential for future gain, you may have to endure the pain of short-term volatility, and remain rational through periods of turmoil.

Your investment plan has been created with your long-term financial goals in mind. So, before you make any irrational decisions, consider the following:

  • Your recommended portfolio was compatible with your long-term investment objectives and time horizon when created. Has your long-term objective changed?
  • Will switching to a short-term investment strategy impact your long-term financial goals?
  • Do you seek to take advantage of short-term market anomalies with the assistance of an asset allocation manager? If so, you may want to consider adding a tactical portfolio to your investment strategy.
  • Has your tolerance for risk and expectation for reward changed? How will diving into a ‘hot market favourite’ impact your long-term investment strategy?
  • Will changing your investment portfolio result in the narrowing of your asset class diversification, thereby lowering your long-term return potential? Will it change your tolerance level? Will a change improve your asset class diversification and improve your potential for return relative to risk?
  • Will your asset class diversification strategy and globally diversified portfolio benefit your long-term investment objective?

Sometimes it is best to come in and talk it through. If you want to book an appointment to go through your investment strategy, please do not hesitate. marie.phillips@ipcsecurities.com