Resist temptation to let emotions rule investment

Investors need to resist being ruled by their emotions when it comes to market, especially in times when investor confidence is low.

With the ASX 200 down 9.2% since the start of the year, fear was ruling the markets which was leading to investors often selling stocks at a loss to exit falling trades.

This was because they went into the investment with the mindset that they could not lose which exposed them to higher risk.

“When you invest with a mindset of not losing, you expose yourself to higher risks, which in turn results in one of two issues. The first is you achieve poor portfolio returns and secondly, it increases your stress levels, as you watch your stocks fall in price and your portfolio devalue. Indeed, watching your investments fall without taking the necessary action to exit is the difference between a comfortable, early retirement and working until pension age or, in some cases, longer,” said Dale Within, chief analyst at Wealth Within.

“While this is overly simplistic, once you learn the rules about how to find good investments and you are able to manage them with the knowledge and confidence of knowing when to exit, your risk and stress levels will decrease and you will profit more.

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"While it is inevitable that some stocks will fall in value after you purchase them, the reality is that to achieve better than average returns with your portfolio, you need to concentrate on assets that are rising in value and increasing your wealth, and sell assets that are falling away.”

Gillham said the volatility in the market was likely to last due to the uncertainty of global economies, high unemployment and the ongoing pandemic.

“While the market will pick a direction soon, unless we can get more certainty and confidence, it is more likely that the direction will be down in the short term.”