THREE WAYS TO REMOVE EMOTION FROM INVESTING
It’s not uncommon that their emotions often drive an individual. However, when it comes to investing, letting your emotions or sentiments come in the way of your investment can be damaging to your investments. But, how does one go about it? How do you make sure that you don’t let your emotions get the best of you? This article aims to help you with the same. Read on to understand how you can keep your emotions at bay while investing.
Here are three ways how you can remove emotion from investing:
1. Adopt asset allocation strategy
Strategic planning is the first step for the bigger picture in financial planning. This is based on an investor’s financial objectives, risk appetite, and investment horizon. Under the asset allocation strategy, the fund manager splits up an investor’s asset across various assets (equity, debt, money market funds, etc.), sectors (pharmaceutical, banking, and finance, infrastructure, etc.), and location (domestic and international funds). It is advised to change your asset allocation strategy as and when your life situation alters, such as the addition of significant goals such as purchasing a house, getting closer to retirement, the addition of someone in the family, etc. Having a proper asset allocation strategy helps to ride the boat during a market frenzy and prevents you from making rash decisions.
2. How many portfolio visits are too much?
One of the important emotion control and behavioral change methods is to avoid visiting your investment portfolio too much. If possible, work on systematizing this activity. Make it a habit to revisit your investment portfolio only in cases when you are about to one or more than one financial goal, or there is a shark shift in the markets, or the state of investments you invested in drastically changes, or there is a change in your income level. Frequent portfolio visits can result in you feeling shrunk or ecstatic, depending on the market condition. Usually, it is suggested not to change the long-term share of your investment portfolio despite market volatility. The logic behind this is that if you refrain from looking at your different types of investments, you will be less persuaded to act on your immediate emotions and market sentiments.
3. Automate your investments
Irrespective of the investment options chosen, you can now automatize the process of investments. Mutual funds, gold, or stock – whatever is your type of investment, you can now invest systematically so that you do not have to make a choice every time, making the entire investment experience seamless and easy. Systematic Investment Plans (SIP) are one of the best ways to automate your investments and take that decision-making factor away from your investments. With SIP investment, you can invest in mutual funds at your convenience. You can choose the frequency, investment amount, investment tenure, and the type of investment you wish to invest in.
Remember, returns on your investment are less about the experience and skills of your fund manager and more about your own sentiments and behavior while handling your investments. The key to good fund management is more objective and less emotional while making investment decisions. Happy investing!