Years ago, when I bought one of my first shares, the share price dropped several days later. As a novice investor, I was scared, so I downloaded those shares in an attempt to minimize my losses. A few days later, they were back at the price I had purchased. A day or more after that, they went up even higher.
It is easy to laugh at my hasty decision and glaring mistake now. Fortunately, I didn’t generate a particularly big loss at the time, selling quickly. But it taught me a very important lesson: not to allow panic or other emotions to get in the way of my investment decisions.
In fact, giving in to emotions is one of the main ways to lose money in the stock market. If you’ve ever been a victim of emotion-driven investments, here are some strategies to use.
1. Take a buy and keep approach
When you think about investing in the stock market as a long-term game, you are less likely to get carried away by individual events along the way. The stock market has a strong track record of recovering losses. If you take a buy and keep approach – load up your quality stocks now and keep them for decades – you are less likely to get burned. It is also less likely that you will panic whenever the portfolio value falls.
2. Use the average dollar cost to your advantage
Many people worry about losing money from stocks and therefore hesitate to buy at certain times, such as when stock prices are up or when a recession is at stake. That is why a better bet is to commit to buying shares at regular intervals, regardless of the circumstances in question.
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It is a strategy known as average dollar-cost and helps investors to avoid falling into the counterproductive den of the rabbit trying to control the time of the market. With the average dollar cost, you can say that you will put $ 100 on the stock market every week. You can even be more specific and say that you will buy $ 100 of a particular stock. The average dollar cost has been shown to help investors pay a lower average share price than timed purchases and is a simple way to get emotions out of the equation. You can set up your brokerage account to follow a dollar costing strategy or sign up for your employer’s 401 (k) plan and have the funds regularly deducted from your paychecks.
3. Diversify
Having a wide range of investments can bring you peace of mind during periods of stock market volatility and decrease the likelihood that you will act irrationally. You can diversify by buying stocks from different market segments or loading index funds. With index funds, your portfolio will not outperform the market in general, but you will benefit from general market recoveries. Index funds also allow you to diversify in an instant, so you don’t have to invest the time to research individual stocks or worry about choosing the wrong ones.
Most of us can’t just push a button and turn our emotions off, but there are steps you can take to be a less emotional investor. This, in turn, could save you from a world of losses in the course of your life.
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Years ago, when I bought one of my first shares, the share price dropped several days later. As a novice investor, I was scared, so I downloaded those shares in an attempt to minimize my losses. A few days later, they were back at the price I had purchased. A day or more after that, they went up even higher.
It is easy to laugh at my hasty decision and glaring mistake now. Fortunately, I didn’t generate a particularly big loss at the time, selling quickly. But it taught me a very important lesson: not to allow panic or other emotions to get in the way of my investment decisions.
In fact, giving in to emotions is one of the main ways to lose money in the stock market. If you’ve ever been a victim of emotion-driven investments, here are some strategies to use.
1. Take a buy and keep approach
When you think about investing in the stock market as a long-term game, you are less likely to get carried away by individual events along the way. The stock market has a strong track record of recovering losses. If you take a buy and keep approach – load up your quality stocks now and keep them for decades – you are less likely to get burned. It is also less likely that you will panic whenever the portfolio value falls.