Investing can be an emotional rollercoaster. The ups and downs of the market can make anyone feel anxious about their investment decisions. However, there are some common psychological and behavioral pitfalls that lead to that sinking feeling with your investments. Recognizing these pitfalls is the first step to avoiding irrational decisions. This article will explore some of the main causes behind investment anxiety and provide tips on how to keep a level head.
Unrealistic expectations lead to felling investments
Many investors have unrealistic expectations about returns. When we don’t see the exponential growth we expected, it’s normal to feel disappointed. However, chasing unrealistic returns often leads to taking on too much risk. A more prudent approach is to have reasonable expectations aligned with your risk tolerance and time horizon. Market volatility is normal – no investment only goes up. Accepting this fact of investing can help avoid irrational decisions when investments decline.
Lack of portfolio diversification contributes to felling investments
Concentrating too much capital in one or two assets increases portfolio risk. When those assets underperform, it can be devastating psychologically. A well-diversified portfolio across asset classes, geographies, sectors, etc. can smooth out volatility. Periodic rebalancing also ensures you adhere to your target asset allocation despite market swings. Many anxious investors benefit from a more passive investing approach through low-cost index funds and ETFs to remove the stress of picking individual stocks.
Obsessive monitoring causes felling investments
Obsessively checking your portfolio multiple times a day is a recipe for anxiety. The market can move wildly minute-to-minute, and most of these micro-movements are just noise. Try to limit checking your portfolio to no more than once per day. And consider setting price alerts on your investments to avoid a nasty surprise on login. Stay focused on your long-term goals – not short-term fluctuations.
Lack of conviction in your investment strategy leads to felling investments
If you don’t have strong conviction in your investment strategy and asset allocation, it’s easy to second-guess yourself when the market turns. Make sure you have a written investment plan you believe in. You should be able to explain the rationale behind your asset allocation and security selection. And have the discipline to stick with your plan through ups and downs. If you lose faith in your strategy, make incremental changes – don’t throw the baby out with the bathwater.
Investment anxiety often comes down to unrealistic expectations, lack of diversification, obsessive monitoring, and lack of conviction. Focusing on fundamentals like setting realistic goals, diversifying, avoiding obsession, and sticking to a plan you believe in can help avoid that sinking feeling with your investments.