Emotional Risk?

  by Tyler Curtis

by CareyAnn Peterson

You will often hear that investors are worried about the risks associated with investments. They are concerned about inflation risk, market risk, and liquidity risk. There is one type of risk that should be a major concern for you, but it is often ignored. Are you concerned about emotional risk? The risk that you make investment decisions based on fear, greed, or worse, doing what everyone else is doing.

No matter what strategy you employ, it is important to look at the long-term objectives of your portfolio and stick to them. Let’s consider the buy-and-hold strategy. You purchase a stock with the intention of holding it for a long period so that it will appreciate over time. The goal is to sell it after it appreciates in value.  Our emotions make it difficult for us to succeed in this strategy. All too often, investors see a down-turn in their stock or receive a hot tip.  They may close out one position at a loss to pursue another stock with better potential, so they think. Buy-and-hold quickly becomes “buy-and-dump when you see a downturn or something better comes along”.

Continuously jumping between strategies will almost always result in continuous losses.  Making constant changes increases fees, commissions, and losses. Consistency is the key to success.  Your focus should be on understanding your own investment strategy and sticking to it. Do you understand your strategy and know how to explain it?

Every investment strategy will have its ups and downs and you will see times of over and under performance. While weathering the bad times is difficult, every strategy has them. If a financial advisor is guarantying high returns, it’s most likely too good to be true. Snider Advisors’ often has to remind our clients to brave the cycles of the stock market. We believe that our investment strategy serves our clients’ needs in all types of financial climates, but you have to stick to the strategy and not let your emotions make the decisions!

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