Don’t Invest on Emotions (Investment Strategy vs. Emotions)
Ever heard the phrase, stocks climb a wall of worry? Well when the markets bounce around, investing requires discipline, patience, faith and confidence in your investment strategy. It is our emotions that can often wreak havoc to a well-thought out investment plan, impacting retirement and other long-term financial goals.
Ask yourself if you could be investing unwisely due to any of the following attitudes; Greed (I TIMOTHY 6:9, PROVERBS 22:9), Pride (PROVERBS 16:5) or Fear (PROVERBS 18:11). If the answer is yes, then as Christian’s consider how you might realign your strategy towards a more biblical perspective. Consider one or two ways you might change how you invest to help reduce some of the emotions and anxiety for yourself or family.
Emotions are normal and will occur – the problem is when we let our emotions guide our investment decisions.
1. Emotional strategy: Waiting for the “right time” to invest. Some financial experts are predicting an imminent stock market decline while, others are forecasting a sharp rebound. Smarter strategy: Ignore the pundits (and your own emotional impulses. Timing the market is nearly impossible to do successfully, even professional money managers can’t predict what is coming next. Only God can say with 100% certainty. Instead consistently invest your excess over time and see it grow. Proverbs 13:11
2. Emotional strategy: Buying the stocks of popular, innovative companies that are generating buzz amongst your friends. While it is fun to feel like you are part of a cool club and are investing in the future, innovative companies are not always the most successful investments. Take Google and Domino’s, which both went public in 2004. Google, which continues to make incredible inventions and technological advances, has returned an average annual return of 15.3% over the 15-year period ending May 11, 2020. Meanwhile, Domino’s, which makes pizza and breadsticks, returned 22.2% annually over the same period. Smarter strategy: Own a broadly diversified portfolio, so that troubles with one company, or sector, or country, have less impact on your overall portfolio. Remember diversify strategically, ECCLESIASTES 11:2.
3. Emotional strategy: Investing in products or managers that purport to have some special “edge.” There’s no such thing as a free lunch, when faced with someone who claims to deliver outstanding performance be weary. Smarter strategy: Invest in products, such as mutual funds, that are highly regulated … and avoid any product or manager claiming a “secret sauce” or applying untested methodologies (or tested methodologies that don’t generally work that well).
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