Understanding Human Nature and Investing
How to Overcome Your Stress in Investing
Human nature is one of the largest obstacles standing between you and successful investing success. Millions of years of evolution have prepared you to recognize and avoid danger; you aren’t as well equipped, however, for distinguishing between real perils and those that are just imagined.
When the stock market swoons, neurons in the brain rally to warn you of danger ahead. The problem is that financial markets move up and down with regularity. What’s perceived as danger is usually just historically normal market behavior.
How Your Fear and Your Finances Intertwine
Increased heart rate, perspiration, and mental fuzziness are all symptoms of fear. It’s difficult to think clearly when you are governed by fear. The human brain isn’t wired to excel at financial decision-making, and fear amplifies this reality.
Human instincts guide you to flee from both real and not-so-real threats. This leaves you vulnerable to cashing out your portfolio at just the wrong time. In many ways, effective investing involves overriding your original factory wiring in favor of actual market history. That can be a tall order.
How to Overcome Financial Fear
Our experience suggests that many clients benefit from ongoing reinforcement of market history to counteract the deeply ingrained programming of human nature. That’s a key goal of this forum – helping frame current events in historical perspective.
The process of financial planning provides essential support and may help you stay the course. Resisting fear and the urge to act impulsively can make a significant difference in long-term financial outcomes.
Why We Feel the Anguish of Minor Financial Losses
Human nature doesn’t prepare you to differentiate between short-term market volatility and permanent financial loss. Emotionally, these can feel like the same thing.
Tamping down your emotions as you make investment decisions is key. It helps to remember that your primary goals may include funding retirement and achieving overall financial independence. Worrying about “beating the market” in the short term can be unproductive and ignites your emotional instincts all over again.
Human nature causes temporary losses to “feel” twice as bad as when you make money in the market. Your brain is constantly scanning for danger.
To better manage your emotions, it helps to become clear about what financial game you’re playing. Once you identify what you can and can’t control, financial decision-making becomes less stressful.
Human nature abhors change and seeks certainty. Within the financial realm at least, certainty is often elusive. Trying to “force fit” certainty within your financial life can end up pushing you away, not toward your long-term goals.
You can’t change your human nature, but you can better understand how it impacts your financial decisions. That insight can improve your experience as an investor. 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 https://apollonwealthmanagement.com for other important disclosures.