by Karl Hartey, 19th June 2023
When making financial decisions, it's important to think with your head, not your heart
We are all driven by our emotions - often, more than we’d like to admit. Emotions are key drivers of behaviour, and can shape our way of investing, for better or for worse. We know we shouldn’t let emotions or impulses drive our investment choices, but sometimes we can’t help ourselves.
New research reveals 50 percent of British investors admit to making impulsive investment decisions, with 67 percent regretting them.
What influences investment decisions?
Social media tops the list, with 32 percent citing it, closely followed by friends (31 percent) and fear of missing out (30 percent).
Separating emotions from investments is hard, no matter how investors are feeling.
A third of those surveyed made impulsive investment decisions whilst excited, a fifth when feeling impatient and 16 percent when in fear of missing out.
Almost half admitted feeling anxious and two-thirds felt excited when checking on their investments. Yet anxiety and excitement may lead to poor investment habits.
Some 62 percent felt a need to constantly monitor their investments to succeed, leaving them prone to reacting to short-term market fluctuations.
An emotional connection to your investments isn’t necessarily a bad thing, especially if you use it as a tool to invest in funds you feel enthusiastic about. However, when feelings start to cloud decision making, it’s time to take a step back.
By understanding your emotions, it’s easier to manage them and create a diversified portfolio that takes advantage of market opportunities and can weather any storms.
Of course, many investors enjoy the thrill and excitement of investing. But a compromise they can make is adopting the ‘core satellite approach’, where money is invested into something stable and less exciting, and adding a small, satellite, component of investments giving more enjoyment, keeping them engaged, and providing an emotional reward without causing you to make decisions you may regret.
The above was provided by Hartey Wealth Management Limited. Registered office: Hilliards Court, Chester Business Park, Chester, CH4 9QP. Tel: 0808 168 5866. www.harteywm.co.uk Hartey Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority