I take my investing to heart

It is almost impossible to take the emotion out of investing. But there are ways to limit your exposure to emotional thinking, editor Edmund Greaves writes. 

Investing is an emotional business, there’s no denying it. We make choices that affect our outcomes. We chase losses and gamble on winners.

By its very nature, it should evoke some sort of biological response, be that in your head your heart or your pants. After all, the process is a part of a long great wealth building journey. It has huge real-life consequences.

I have felt plenty of emotions around investing. 

Be it the annual sum I do with my workplace pension to see how much its grown (usually a happy surprise). 

Or maybe the gut-wrenching anguish of realising I had bought an investment right before a massive market dip (thanks, Covid). 

I have friends who have been driven to chase losses, as panic set in that their risky purchases fell foul of investor caprice. 

One of the biggest emotions I have felt, and still feel today, is the regret I did not use resources available to me at an earlier age to begin my journey in investing sooner. 

And one of the best was the feeling I got looking at my son’s Junior ISA filling up slowly, knowing that I am not just working for my future, but his too. 

So what can we do? How can we quell these impulses as investors (and humans)?

Investment robots

Not all emotions around investing are bad. But the bad ones can lead us to bad habits or mistakes. 

It is impossible to completely divorce our emotions from the process of investing. But we can minimise and mitigate them.  Here are some ideas.

1. Stop looking

Perhaps the easiest way to do that is to simply not look at them. Check your pension once a year. Look at your ISA once a month. 

If you’re doing it daily, it’s probably too much. Remember that we’re here to plan for the long-term. Investing should never be with a view to ‘getting rich’ because anyone who tries to sell you that is a huckster. 

Not looking at your investments, assuming the thesis behind them holds, is brilliant. Just forget about them for a bit. Don’t read the business news or look at those green and red stock index graphs. 

The media is not here to report nice stories and tell you everything is going to be ok. They need eyeballs that deliver shock and horror. Stop paying attention. 

I am reminded of an excellent book that talks around this area (although not specifically about finance), called Stop Reading the News by Rolf Dobelli. Well worth the read. 

2. Don’t buy the marketing

The next thing to do is to look at investments and remove the sense of emotion from them. People will use emotions to drive sales of anything, from cars to cheeseburgers – investments are no different. 

If there is a narrative, a story, in place to try to convince you this is a good idea, think about whether this is actually just a tale of marketing to convince you, or a genuine cause. 

This attitude is favoured by the likes of Warren Buffett, the king of value investing. Buffett doesn’t buy sexy or fashionable investments. Today’s version of that is AI. Three years ago it was NFTs and the Metaverse (lol and rofl). 20 years ago, it was mortgage-backed securities. Guess how they’ve all turned out!

3. Diversify your emotions away

If you find yourself struggling with the first two – maybe detailed investing is not for you. Fortunately, there is a myriad of ways to take the process out of your own hands.

For people with smaller portfolios, this means considering tracker funds, wide-based investment vehicles that buy the market and are not overly focused in one sector or narrative. 

Sure, there will still be some emotions in that, but the path should be smoother and the opportunity to screw up lesser.

There are some interesting ways to do this including new apps such as Stratiphy, whose founder Daniel Gold recently joined the Mouthy Money podcast to explain. 

Stratiphy uses ‘quantitative’ investing to deliver strategies reliant completely on data analysis and AI rather than human-led decision making.

Investing is never going to be completely foolproof. We are human after all. And some emotions are necessary – after all they still do act as checks on our own human nature. But learning to rein them in and temper our worst proclivities – when it comes to our money – might be a good decision in the long run. 

DISCLAIMER

This article is produced for general informational purposes only.

It should not be construed as investment, legal, tax, mortgage or other forms of financial advice.

If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation.

Past performance is no guarantee of future results.

Investments can go down as well as up and you may get back less than you started with.

Investments are speculative and can be affected by volatility.

Never invest more than you can afford to lose.

For more information visit ⁠⁠⁠www.fca.org.uk/investsmart⁠