The psychology behind investing

brain money
Only you know what investing decisions are right for you.
Credit: Colourblock

You may have been on the sidelines for some time, following the stock market and watching it go up, down and sideways. Pundits tell you now may be the best time to invest, while others tell you to get out. With so many opposing opinions, it can be difficult to know what to do, whether you’re a beginning investor or have been in the game for a while. Here’s how to rely on yourself.

An old Wall Street adage states that two factors move the market: fear and greed. This characterization is far too simplistic. The human mind is very sophisticated, and human emotions are very complex. The emotions of fear and greed don’t adequately describe the psychology that affects people and investing.

Why do investors do what they do and then react to what they experienced in so many different ways? Successful investing requires something perhaps even rarer: the ability to identify and overcome one’s own psychological weaknesses such as overconfidence, selective memory, self-handicapping, loss aversion, anchoring, confirmation bias, mental accounting, framing and herding.

An investor, if successful even one time before may think doing the same thing may yield the same results. This mantra does not seem to be realistic given that markets are prone to financial shifts for a multitude of reasons. Any investment whether conservative to aggressive has risk and every investor is exposed to some form of it. The key is to mitigate the risk and attempt to maximize the return is within an investing tolerance.

Investors may not have a clue as to what an asset class is or how one class relates or interacts with another type of class. How does a gold stock fair when placed in a portfolio with large cap stocks and bonds? What effect does inflation, changing interest rates or political unrest overseas have on their portfolio asset class holdings? What strategy does an investor have in place to help decide to hold, sell or buy additional assets?

Knowing what financial personality trait you have can help you minimize your self-talk and propel you into understanding and maximizing your investing strengths. There are those self-motivated investors who once understanding their own psyche can move in a positive direction and be content with their decisions, good or bad. Being honest with one’s self and taking a life’s inventory of current situations and anticipated changes allows for a realistic approach to investing and establishing goals across the board and in all facets of their life.

Metro does not endorse the opinions of this author.



News
Entertainment
Sports
Lifestyle
National

Bloomberg: Going green will grant you longer life…

Former NYC mayor Michael Bloomberg tells Metro that cities are where fighting global warming can make a difference, and increase people’s lifespan.

International

Ban Ki Moon: "Climate change is an issue…

My message to you is: make your voice heard and your actions count. Change is in the air. Solutions exist. The race is on. It’s time to lead.

Local

Earth Day New York food toolkits to help…

Hundreds of classrooms across New York City already have indoor container gardens that allow students to grow food right where they learn. But Earth Day…

Local

NYPD announces street closures for United Nations General…

The United Nations representatives are in town, and multiple city streets will be closed to traffic through Saturday, Sept. 26. The NYPD is urging those…

Television

10 Facts you won’t learn about Frankie Grande…

Frankie Grande is the worst and/or the best. Whether or not you're a fan, you'll want to know these facts about the polarizing player from "Big Brother 16."

Movies

Antoine Fuqua can kill someone with just a…

It's amazing what you can get done with the right tools. In designing the climactic battle in "the Equalizer," in which Denzel Washington's retired special…

Movies

Guess Ben Kingsley's worst filmmaking experience

Here's a fun game: Sir Ben Kingsley has made a lot of films since "Gandhi" in 1982, but at least one of them was a…

Books

Does Lena Dunham have any secrets left?

Get a sneak peek at her new book to determine if it’s worth the read.

NFL

3 things that went wrong in Jets loss…

The Jets have very little room for error with a far-from-explosive offense.

NFL

Eli Manning finally feeling good in West Coast…

The Giants have very little time before their next game, but they still took a moment to relish the team’s biggest offensive outburst since Week 1 of 2013.

College

College football top 25 poll: Oregon, Alabama close…

College football top 25 poll: Oregon, Alabama close in on FSU

NFL

Jay Cutler takes Marc Trestman's coaching to heart

While Jay Cutler turned to an autobiography on the man who would be his head coach, Trestman had personal experience with the player.

Wellbeing

5 gadgets to protect you from sharks, concussions,…

The medical industry is inundated with devices looking after all aspects of your wellbeing, from monitoring your sleep patterns to warding off shark attacks. We…

Wellbeing

Narcissism and the ugly side of vanity

I have a friend who constantly talks about herself and rarely asks any questions about my life. She is constantly preening, obsessed with her body,…

Wellbeing

Lacking new ideas, Apple Watch disappoints health experts

Technology pundits were quick to predict the demise of most fitness wristbands and smartwatches when the Apple Watch was announced. But health care professionals and…

Style

Sarah Doukas on social media, models and diversity

The maker of Kate Moss tells Metro how social media can drive the diversity change in the fashion industry.