Out of curiosity I often type the titles of my posts into Google search just to see what pops up. Type “wealth and emotions,” into Google Search or click the link for a glimpse of the wide range of posts published on this topic.
Whether you like it or not your emotions – and how well you understand and account for them – have a huge impact on your capacity to build wealth.
Investing Your Emotions
Most great investors would tell you when they keep their emotions in check they almost never lose and almost always lose when they allow their emotions to rule the day.
It gets even better – all of us deal with emotions differently and are more prone to certain types of emotions than others. For some of us anger is the dominant emotion while for others it is fear, shame, or even happiness and joy. How we interact with these emotions – whether from a place of stress or a place of stability – can either hinder us or help us in our efforts to build wealth.
Consider the recession induced by the sub prime mortgage crisis of 2008. Or the the dot com bubble bursting in 2000-2001. The markets declined rapidly and left many investors watching their portfolios slide down the seemingly endless slope. Individual investors as well as seasoned fund managers panicked and let fear spur them on to sell, sell, sell!
At exactly the wrong time.
When the market is going down you want to buy, not sell. Selling on the way down is how you lose wealth.
The fear incited by watching stock indexes plummet causes normally rational people to forget everything they know about how the market works.
Seasoned investors and most savvy individual investors understand the market will eventually start climbing again and in relatively short time surpass market levels prior to the crash or recession. Over the history of the stock market, the market has always grown.
The key is to diversify your investments, stick to a process for selecting, buying and selling, and sit tight during the storm, possible looking for opportunities to buy more shares of solid mutual funds or index funds at a discount price. Remember when the market is down, shares are generally cheaper, and thus you can purchase more shares for your investment dollars and benefit from the returns when the market swings back up.
If you invested in one or two risky single stocks and the companies are about to implode, you probably want to sell as quickly as possible and contemplate the lessons to be learned while licking your wounds. If this is you, I almost guarantee you bought those stock based on emotions and not on solid research with evidence of long term growth potential.
I tend to be methodical and rational in my investment choices and leave things pretty much alone. My advantage here is that I am a highly rational person who by nature does not tend to make big decisions based on emotions. I tend to do the opposite in an emotional state; I simply make no decisions at all. This is not necessarily a good thing.
When I am in a place of stress, I tend to withdraw from relationships and hold on tightly to liquid funds and possessions. I make choices based on a fear of not having enough or being seen as cheap by my friends when I ask for a separate check. If I don’t think I have enough to split the bill evenly, I will avoid the outing altogether.
The crazy thing is that this fear is often irrational and dare I say selfish. Oh, and then pride steps in and refuses to accept charity when all my friends want is to be gracious and generous out of the love in their hearts.
Earlier this year I started new daily practice of short meditation followed by a brief daily journal right after my daily scripture reading. The meditation allows me to practice awareness and clear my thoughts, and the morning journal exercise gives me an opportunity to set the course of my day.
In my journal I include the scripture I have read, three things I am grateful for, location, weather and emotional state, concluding with random thoughts such as what I need to do that day, things that I am wrestling with, or that kept creeping into my meditation.
Starting the day being grateful and taking time to take stock of where I am emotionally has had a huge impact on my ability to stay balanced.
No matter what we do, we all fall prey to our emotions and all become overwhelmed at times. The idea is not to avoid our emotions, but to learn how to embrace them well and give them space to take their course without bankrupting us financially or emotionally.
Hey, ever heard the phrase “emotionally bankrupt?” Google it.