Financial Symmetry News & Views

Financial Symmetry is dedicated to helping you get a handle of your financial picture.  We think it’s important to remember that investments should be evaluated on their merit, not personal emotions that can cloud your judgment and lead you to act in ways that are counterproductive to your financial success. Below are some examples of common emotions that can lead to poor decision making.

Feeling Left Out

The media can make it seem like everyone else is getting rich.  You can also hear tips from a friend, neighbor, relative, co-worker or even a stranger that can make you feel like you are the only one that is not making loads of money on a great new thing.

Greed

It’s an intense desire to acquire or possess.  Feeling that it is possible to get something for nothing is one of the strongest triggers for greed. There is an almost irresistible tendency for people to think they have “lucked out” and stumbled into an opportunity of a lifetime.  While this might be the case, most of the time it is not.

Desperation

It’s a state of hopelessness leading to rashness. This feeling can set in when people have made unfortunate financial mistakes or have just been impacted by a bad economy. Some people try to bounce back by assuming an unsafe amount of risk.  This approach rarely works as higher risk can lead to even greater losses.

Fear

It can immobilize people into stagnant patterns.  Fearful investors avoid getting involved in the market because it lacks certain security from losses.  However, the inability to accept some risk due to fear can greatly diminish your investment returns.

Attachment

This refers to a personal allegiance or loyalty to an investment without proper analysis.  This attachment can impair your ability to construct a well-diversified portfolio. Beware if you find yourself saying “I’ll never sell that because…

• My great grandfather bought that stock in 1912
• I worked a long time for this company and I owe them
• I have used this product for years

Investments should be evaluated on their merit.

Pride

Pride and investing are the equivalent of oil and water. This emotion can stop you from being able to admit when you are wrong and correct your mistake.  No one buys investments expecting them to under perform, however some of the time it is inevitable.  Capital Research Management, the research firm for the American Funds, states “We are very careful when making changes because we expect to be wrong 1/3 of the time.”  With an expectation of being wrong 1/3 of the time and an excellent performance record, it is clear that a certain amount of humble detachment is appropriate and necessary for successful investing.  It is also important to recognize when it is appropriate to seek assistance from experts

Fairness

This is something not easily measured. People like to feel as though they are being treated fairly and that desire extends to their investments. However, investments can be beneficial to you as an individual and seem like the treatment was not equal to all.  Investments are not a zero-sum game where someone has to be a winner and a loser.  People generally make mistakes when they are unwilling to accept the fact that the world is not fair.  Individuals should not base their decisions on forcing the issue of fairness when it is in conflict with what is best for them.

Supporting Viewpoint

We found an article on FiLife.com that also helps to explain emotional investing.  Tom Adams explains in  Emotional Investing Hurts Returns how  emotions can effect your investments.