Our recent article highlighted the incredible power of compound interest. As we discussed, a long time horizon is essential to unlocking the full potential of your wealth. But investing early and often is easier said than done! This article will introduce some strategies that will help you commit to the long-term nature of investing by exploring the disconnect between human emotions and the hyper-rational world of the stock market.
Humans Are Inherently Irrational
It’s not your fault. In fact, it’s what makes you, YOU. Human emotions — kindness, love, compassion, even stress and anxiety — are what make life worth living. Unfortunately, the stock market could care less about your emotions. The stock market is driven by numbers and projections, and it doesn’t care when you plan to retire or when your kids will go to college.
Acknowledging the conflict between emotion and reason will make you a much better investor. Especially today, when there are many tools that allow people to invest directly in the market, it’s important to have a well-developed investment strategy.
At Denver Private Wealth Management, we’ve heard horror stories about people who have invested with no overall plan — people who jump at the latest hot stock, who overreact to normal market fluctuations, and try to out-guess the market. More often than not, these investors wind up disappointed and frustrated because they were operating on emotion.
We all know that it’s best not to make important decisions emotionally. You wouldn’t buy a house at first sight or propose to your significant other on a whim because these are huge decisions that will materially affect your happiness for many, many years. It’s the same deal with investing.
A Rational Approach to Investing
The only way to invest successfully over the long haul is to operate within a defined plan. There are dozens of different approaches to investing — growth strategies, value plays, options, alternative investments, and many more — but choosing the one that makes sense for you (and sticking with it!) is critical to your long-term financial success.
At Denver Private Wealth Management, we take pride in customizing plans and investment strategies to meet your unique needs. Working with a financial advisor will help smooth out the emotional rollercoaster that can come with investing your assets in a volatile market. Sometimes the market rises and you may feel like you’re on top of the world, but markets also fall. It can be hard to keep track of where you stand relative to your goals; your financial advisor can help you determine if you’re on pace.
Investing can be scary. Human beings are naturally ill-equipped for the unemotional swings of the stock market, and understanding this is the first step to becoming a better investor. Sticking with a well-defined, goals-based financial plan will help you feel more confident in your long-term vision.
Denver Private Wealth Management is an independent fee-based financial planning practice with 50+ years of experience in the financial industry. DWPM customizes portfolios based on your financial goals and works closely with you, your tax advisors and estate attorneys to form a comprehensive view of your financial situation. For more information or to set up a free consultation, contact us at firstname.lastname@example.org.
The information contained in this post is for general information purposes only. The information is provided by Investing Rationally in an Irrational World and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.