Timing is important when it comes to making sound financial decisions as is emotional intelligence.
Emotional intelligence is the ability to recognise your emotions, and understanding their effect on your decisions can lead to better decision making.
It can also be argued that investors who fail to recognise and manage their emotions effectively, are in danger of making poor judgements in the first place, or of overreacting later when things don’t go as initially anticipated.
It is impossible for most of us to separate our feelings from our thoughts when it comes to investing our money. We also stand a better chance of making good decisions if we recognise our emotions and make them work for us.
Research shows people are unable to make decisions about their personal or social life choices when they are emotionally stressed. Such individuals have no tools to help them distinguish between all the scenarios and potential consequences.
If you are running your own investments, your ability to make competent decisions may be impaired by:
- death of spouse, parent, child, close friend etc
- divorce
- childbirth
- inheritance
- marriage, new love
- major financial losses or gains
- market conditions – extreme volatility such as a market collapse or sudden recovery
- moving house/sale of house/purchase of house
- job related such as retirement, promotion or retrenchment.
Here are my top 5 tips for investing without emotional interference:
1. Take your own emotional pulse with the aim of knowing what you are feeling it , and use those preferences to guide your decision-making.
2. Keep highly charged and disruptive emotions in check, learn how to monitor our moods, ensuring we don’t make significant decisions while under the influence of extreme emotions. This could involve taking the time to wait for the strong emotion to die down before, for instance, we make the decision to purchase a property orsell stock..
3. Learn to delay gratification to enable us to focus on long term rather than short term outcomes.
4. Spend time on getting yourself into a positive frame of mind,do something pleasant, sharea joke or reminisce about an enjoyable experience before sitting down to evaluate investments.
5. Talking to a good financial advisor can help. They can provide an unemotional perspective, act as a sounding board, offer other options and provide you with peace of mind.