Ruled by our emotions we often do the most inevitable in terms of investments – buy high and sell low. Such tendencies are most harmful for financial well being as it can push us further away from achieving our financial goals.

However, though it is easy to say stay unemotional towards your investments, it is equally tough to follow.

In this blog we will talk about the 5 emotions that often affect our investment decisions and what we can do to avoid the tendency of emotional investing.

1. Fear : Selling investments during market downturns turns paper losses into real losses. Instead, buy more when prices are low.

2. Regret : Immediate negative returns can cause regret, but staying invested during volatility leads to long-term gains.

3. Hope : Excess optimism in a bull market can lead to buying at high prices. Focus on investment goals rather than timing the market.

4. Denial : Holding onto poorly performing investments due to past success can be harmful. Sell off persistent underperformers.

5. Greed : High market milestones can trigger over-investment at expensive prices. Base investments on personal financial needs, not market trends.

Here are the 6 things you should do to avoid emotional investing:

1. Invest in equities through mutual funds : Investing in equities is the easiest way to make your money grow, but for regular investors the same is not that easy as they don’t understand how the market works and where or how to invest. The easiest way to invest in the stock market is by investing your money in Mutual Funds. The money for Mutual Funds is handled by a fund manager who is a stock market expert and has the well-rounded knowledge about the stock markets.

2. Stay calm when markets are volatile : This is easier said than done, but if we can stay calm during volatile market situations, it can be highly beneficial. The paper losses that we observe during the bear market, turns into paper gains in the bull market, eventually we end up earning good returns. So do not not indulge in panic selling, and stay invested till you achieve your goal.

3. Staying invested for the long term : Mutual funds are presumed to be risky investments as they are market linked and their returns vary depending upon how the market moves. However, even though there are no guaranteed returns for mutual funds, the effects of volatility on returns negates over the longer term, giving you the opportunity to earn  handsome returns in the long run.

4. Make goal based investments : We make emotional investment decisions only when we make investments as per the market movement. The best way to avoid this is to make goal based investment, which is a much simpler investment strategy. Fix your goal, set a timeframe for it, and attach the right investment product to it. It saves you from the hassle of constantly monitoring the market.

5. Diversify your portfolio to diversify your risk : It is very important to diversify your investments across various asset classes – like equity and debt – to reduce the risk in your portfolio. The equity helps your money to grow when the markets are high, while debt cushions your losses in a bear market. The allocation of equity and debt should be as per your risk appetite.

6. Seek financial advice : Finally, seek financial advice from time to time from a legit financial advisor. Such advice never goes in vain.

* Bottom Line : Emotional reaction to the market behaviour can make it difficult for you to focus on long term goals. In fact, it can even push you away from them. So, instead of reacting to market movements, stay focused towards achieving your financial goals. That is the only way you can ensure financial wellbeing for you and your family.