When I bought one of my first shares years ago, the share price dropped several days later. As a novice investor, I was shocked, and I dropped the shares in an effort to limit my losses. A few days later they were back at the price I bought them for. A day or so later they rose even higher.
It’s easy to laugh now at my result and my conspicuous mistake. Fortunately, at the time, I did not incur a particularly large loss by selling quickly. But it taught me a very important lesson: not to let panic or other emotions get in the way of my investment decisions.
In fact, indulging in emotions is one of the most important ways you can lose money in the stock market. If you have been a victim of emotion-driven investing before, here are some strategies to use.
1. Take a buy-and-hold approach
If you think about investing in the stock market as a long-term game, you will be less likely to fall by the wayside of individual events. The stock market has a strong history of recovering losses. If you follow a buy-and-hold approach – now stock up on quality stocks and hold on for decades – you’re less likely to get burned. You are also less likely to panic every time your portfolio value falls.
2. Use average dollar cost to your advantage
Many people are worried about losing money on stocks and therefore hesitate to buy at certain times, such as when the value of the stocks is higher or when there is a recession. Therefore, it is better to invest in buying stocks regularly, regardless of the circumstances.
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This is a strategy known as dollar cost averaging, and it helps investors avoid falling into the counterproductive rabbit hole to end the market. If you average the dollar cost, you can say that you will put $ 100 into the stock market every week. You can become even more specific and say that you will buy a certain share of $ 100. The average dollar cost has been shown to help investors pay a lower average share price than buying on time, and it’s a simple way to pull emotions out of the equation. You can set up your brokerage account to follow a dollar cost average strategy, or sign up for your employer’s 401 (k) plan and have your funds regularly deducted from your salary deductions.
3. Diversify
If you have a wide range of investments, you can buy peace of mind during stock market volatility and make it less likely that you will act irrationally. You can diversify by buying stocks from different segments of the market or by uploading index funds. With index funds, your portfolio will not be better than the broader market, but you will benefit from general upswing in the market. With index funds, you can also diversify instantly, so you do not have to spend time looking at individual stocks or choosing the wrong one.
Most of us can not only turn on a switch and eliminate our emotions, but there are steps you can take to become a less emotional investor. This in turn can save a world of losses over the course of your lifetime.
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When I bought one of my first shares years ago, the share price dropped several days later. As a novice investor, I was shocked, and I dropped those stocks in an effort to limit my losses. A few days later they were back at the price I bought them for. A day or so later they rose even higher.
It’s easy to laugh now at my result and my conspicuous mistake. Fortunately, at the time, I did not incur a particularly large loss by selling quickly. But it taught me a very important lesson: not to let panic or other emotions get in the way of my investment decisions.
In fact, indulging in emotions is one of the most important ways you can lose money in the stock market. If you have been a victim of emotion-driven investing before, here are some strategies to use.
1. Take a buy-and-hold approach
If you think about investing in the stock market as a long-term game, you will be less likely to fall by the wayside of individual events. The stock market has a strong history of recovering losses. If you follow a buy-and-hold approach – to upload quality supplies now and stick to them for decades – you are less likely to get burned. You are also less likely to panic every time your portfolio value falls.