Cultivating the Right Investing Mindset
If you’re like many investors, you probably spend a lot of time and mental energy focusing on the myriad of small details involved with investing. Instead, you should try developing and cultivating the right mindset about investing. Your mindset has more of an impact on your financial success than the tiny minutia of investments.
4 Tips to Cultivate the Right Investment Mindset
1. Overcome Your Mental Biases
Behavioral finance research shows that market declines impact your investing decisions much more than market increases. In fact, some studies reflect market drawdowns are about three times as emotionally impactful as market gains. Some say, “the downside hurts more than the upside helps.”
Since the broad stock market is positive about 75% of the calendar years over time, you need a long-term mindset to avoid letting the down market years take control of your investing strategy.
2. Focus on What You Can Control
This is the point where the really hard work begins. You ultimately have to focus on the things that you can control in the investing process and acknowledge the things you can’t control. You can control your diversification, risk level, and how well you stay invested. You can’t control short-term market ups and downs, politics, or random scary events.
Your investing mindset is an amalgamation of your baseline beliefs about how markets work along with the day to day noise that you hear, read, and see. Many times this useless noise overwhelms your core beliefs and causes you to make emotional decisions. Conflicting narratives and equally conflicted emotions can make a mess of your financial decisions.
3. Keep it Simple
As the saying goes, “investing is simple, but not easy.”
If you focus on a simple, uncomplicated strategy, you have a far better chance of resisting the temptations of the day and reacting to things that aren’t important to your long-term financial success.
If you keep things simple, you can “test” each financial decision against your goals. You can see if your choices are influenced by fear, greed, or the trends currently in vogue. You might be surprised by the results.
You likely will find that your decisions are unbalanced with emotions and noise having a disproportionate impact on your decisions. Remember that energy flows where your attention goes.
“Testing” your decisions also allows you to come to grips with your investing philosophy and what actually matters most within your financial life. Your philosophy should be genuine to you and something that you can act upon and adhere to in all types of financial circumstances.
4. Keep Your Eye on the Ball
Your financial philosophy also needs to mirror the foundational principles that are important to you. To be effective, your operating philosophy should anticipate that there will be “things that work out as expected” as well as those things that “ don’t work as expected.”
By developing the right investing mindset you are neutralizing the impact of extraneous inputs and positioning yourself to act upon your plan, not just react to “shiny objects” along the way. You make progress toward your lifetime financial goals by action, not reaction. Start there. Ready for a real conversation?
Disclosure
Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website for other important disclosures.