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Investors know they shouldn’t let emotions or impulses guide their investment choices, but many just can’t help themselves, according to a survey by personal finance website Magnify Money.
A majority, or 58%, of investors surveyed agreed that their portfolios perform best when emotions are excluded from the equation. Still, 47% said it was difficult to keep emotions at bay, according to the survey.
The result is the buying or selling of remorse: Two-thirds of respondents said they regret impulsive or emotionally charged investment decisions. The people most likely to make these regrettable moves are Gen Z (85%) and Millennials (73%).
Because they have less experience in the market, young investors may not know how to make decisions, said Kamaron McNair, editorial assistant at MagnifyMoney.
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On top of that, it is now easier to go public thanks to the various trading apps available. Combine that with the increase in social media investment advice, and it could be a recipe for disaster.
“The environment made it easier for them to make mistakes,” McNair said.
“You see a TikTok buying this stock, and people are listening,” she said. “They don’t do a background research on who gives this advice.”
It’s not just emotions that interfere with decision making, it’s alcohol. Almost a third, or 32%, of investors invested while intoxicated. A whopping 59% of Gen Z surveyed admitted buying or selling an investment while intoxicated.
What has to be done
Before you fight, know that it’s human nature to be emotional – and trying to block your emotions is futile, said Jacquette M. Timmons, financial behaviorist at New York-based Sterling Investment Management.
“Instead of trying to deny the existence of the emotion or to suppress it, be honest with yourself about what this emotion has surfaced. [is],” she said.
Once you recognize it, whether it’s fear, greed, or something else, determine why you feel this way. Next, determine the next action to take based on a system you should already have in place, which involves which businesses you want to buy, how you value them, and when to sell or buy.
“Far too many people are simply measuring whether they should buy or sell something based solely on the movement of stock prices that has nothing necessarily to do with the performance of the company,” said Timmons.
Instead, look beyond the daily stock price or quarterly movement to determine when you’re going to sell, she said.
While people can’t escape the emotion, they can choose to be impulsive or not, she noted.
As well as coming back to your system when faced with the desire to make an impulsive decision, also take a look at the overall impulsiveness in your life. See what were the triggers of this emotion to help you identify patterns and allow you to put up barriers.
It is also important to know whether you are investing, which means holding assets to build wealth for the long term, or trading, which involves frequent buying and selling.
“Part of the challenge is that people are playing the market and they don’t know what their role is,” Timmons said.
“That’s why they make these impulsive decisions.”
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TO VERIFY: Almost half of Americans who sell their homes don’t plan to buy another one: here’s what they do instead via Growing up with Acorns + CNBC
Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.