All investors have emotions, even the most rational ones. Investment decisions are largely driven by these emotions. And they can be different during every phase of the stock market process. Ever wondered how you’d react? We’ll take you for a ride on the emotional roller coaster that can affect any investor.
A kick if prices on the stock market rise, and frustration if prices suddenly fall. These are logical emotions that every investor can relate to. But these emotions might cause you to lose sight of reality, and even make the wrong decisions. For example, you buy a popular share at a time when prices have already risen sharply. Or you panic when prices fall, and sell your shares without looking at the long-term prognosis.
Have you any idea how you’d react? Allow us to show you the kinds of emotions that investors can feel at certain times. Understanding these emotional phases might stop you from making decisions based on emotion.
Share prices are on the rise. Investors feel optimistic, things are going well. And because things are going so well, their enthusiasm grows. Media reports about the stock market are all positive. Investors start buying more. But the higher the value of their investments, the more likely prices are to fall. So the risk of losing all or part of their initial investment starts to rise…
And then share prices have suddenly passed their peak. Investors start to get nervous; is this a dip or the beginning of a crash? The markets drop even further. Investors can’t quite believe it, things were going so well. But they hold their nerve in the knowledge that they’re investing for the long term…
After a period of disbelief, prices continue to plummet and investors fear the worst. All traces of optimism fade and the idea of selling takes hold. As some investors want to get rid of their investments, prices drop even further. This is the lowest they’ve been in years. Investors start panic-selling. At a considerable loss…
Low share prices mean cheap shares. Some investors sense an opportunity and start buying again. Prices gradually start to rise. But the average investor only starts to reinvest once prices are well on the way to recovery. And once the rise sets in, the emotional roller coaster starts all over again.
Investing involves risks. You could lose (some of) the money you invested. If you are going to invest, it is important that you are aware of this. Invest with money you can spare. Read more about the risks associated with investments.
If you want to build up your knowledge before you start investing, or just want to understand it better, learn the basics in just 8 steps.
You are ready to get started. You have sufficient balance in your linked account and you want to buy your first investment. But what do you buy? What would be a good choice? Perhaps you already know exactly what you want. If not, let us point out the things you should bear in mind.
Is it possible to invest without running the risk of your investment losing value? Unfortunately not. There’s no such thing as risk-free investing. Investing always involves risks. Even so, there are ways to reduce investment risks. So how do you go about this? 6 tips to reduce investment risk.
