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

Dogs are capable of feeling jealousy - U.S.…

By Curtis Skinner(Reuters) - Dogs are a man's best friend, and research released on Wednesday says canines want to keep it that way.Dogs are capable…

Local

G train riders brace for five-week shutdown

G train service will be suspended between Brooklyn and Queens between Friday, July 25, and Tuesday, Sept. 2.

International

Peaches Geldof's death was drugs-related, coroner rules

LONDON (Reuters) - The death of Peaches Geldof, the daughter of musician and Band Aid founder Bob Geldof, was drugs-related, a coroner ruled on Wednesday.The…

Local

Family, supporters gather in Brooklyn for Eric Garner…

Family members gathered on Wednesday for the funeral of Eric Garner, who died shortly after police put him in a banned chokehold as they arrested him.

Going Out

Where to go drinking on National Tequila Day…

Thursday is just close enough to the end of the week to make you envision yourself already sunning on a beach towel or lounging by…

Going Out

Things to do in NYC this week: July…

Performing arts A 70’s Summer Night Friday, 6:30 p.m. The Green Building 452 Union St., Gowanus $35, 347-529-6473 Party like it’s summer in the 1970s…

Going Out

5 must-try dishes at Edible Manhattan's Good Beer

Rooting out the exotic amid the New York City bar scene is noble quest. But if you’d like to have it all come to you,…

Books

Art imitates life (almost) in David Shapiro's new…

David Shapiro talks about his book, "You're Not Much Use To Anyone."

NFL

Jerry Reese confident with Giants, skipping countdown clocks…

Last year, Giants GM Jerry Reese installed a countdown clock in the locker room to inspire Big Blue to play in their own stadium for Super Bowl XLVIII.

MLB

Brandon McCarthy finds his calling on Twitter

Yankees starter Brandon McCarthy joined Twitter three year ago for the same reason many people do: to get news quickly.

Sports

NBA great LeBron James sends 800 cupcake apologies…

By Kim PalmerCLEVELAND (Reuters) - NBA star LeBron James, whose recent return to the Cleveland Cavaliers in his home state of Ohio sparked a frenzy…

NFL

Fantasy football: Johnny Manziel could give your running…

Fantasy football: Johnny Manziel could give your running game a boost

Food

Recharge with a post-workout smoothie from Nicky Hilton

Some people can roll out of bed right as their alarm goes off. And that alarm isn’t set for 20 minutes before they have to…

Education

Colleges are increasingly embracing the concept of gender-neutral…

  Northwestern University recently made headlines after announcing that it would be installing two gender-neutral bathrooms in the university's student center. “These are two gender-open…

Career

How to prepare to interview for your dream…

    Congratulations! You landed a job interview at your dream company! A lot of hard work has gone into determining which companies to apply…

Style

The shirtdress is a summer must-have

  We love throwing on our boyfriend’s shirt and a pair of jeans (no matter how much he grumbles that it’s his turn to wear the…