Investment Behavior (How to Stay Disciplined)?
By R. JEFF GREEN
March 1, 2020
The Investor is usually the greatest threat to their investment portfolio. The instinctive and emotional side of the investor’s brain can cause adversity to their retirement savings. Fear and greed can overtake good judgment and wipe out any rational thinking. The ultimate result is regret over an unwise decision. However, the damage can be far more significant than regret, but devastation to a retirement plan.
Humans have strong emotional traits such as love and affection, but also fight and flight. When it comes to investing, fear will overtake the investor and the instinct to run away is very strong. Many in the financial world will capitalize on this and sell out their client at the bottom only to profit by selling them a substitute product. The results can be devastating and permanent.
Many covet their neighbor’s high returns and often speculate and gamble with there retirement dollars instead of being prudent.
There is a straightforward solution to poor investment behavior, and that is to use a different part side of the brain.
Let's instead use the cognitive side of our brain. This means we get to exercise logic and reasoning to make decisions.
Logic: reasoning conducted or assessed according to strict principles of validity.
Reasoning: the action of thinking about something in a logical, sensible way.
Does it make sense to try to time the market and stock pick when you really don’t know what the future will bring? No.
In Summary: Controlling your emotion and instinct is hard to do: that’s a given. Instead we can use the logical side of the brain and not chase futile gains or panic in the dips, while following a well-designed investment strategy. If we stay the course and remain disciplined, we will be able to achieve our American Dream.