Emotional Investing

How emotions play a role in investing, and what to do about it
November 26, 2016, 10:36am

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It can be easy to feel a little emotional when you’re first figuring out what to do with your money. After all, we all can make irrational financial choices when fear, anxiety, or excitement come into play. Remember that red leather jacket you bought after you got dumped in 2012? That was a choice.

Don’t worry, you’re not alone. “Feelings of denial or pride are common when the market is in flux,” says Patricia White, Executive Director of Credit Counselling Canada. “But remember that investing is a long-term goal where there will be ups and downs.”


Maybe you’ve already sunk your whole paycheque into a sexy new startup. Or you frantically sold those stocks your dad gave you when the market took a dip last summer. Or maybe, you’re choosing to postpone your financial stress indefinitely and just cramming your serving tips into that shoebox in the closet.

Whatever your circumstances, when you’re ready to start relieving some of your financial stress by moving into smarter investing, it’s important to consider how you might end up feeling—and what you can do to ensure you keep acting with your head, not your gut.

Why we’re always looking for the next big thing

It’s pretty common for people to chase the dream of easy money when they first start investing. “Hot tips” are everywhere, and it can seem that everyone is striking it rich on some new tech craze. You don’t want to miss out, right?

Our habit of mixing finances with FOMO isn’t really our fault. As human beings, we’re hardwired to seek out potentially pleasurable things. Our brains light up like Christmas trees at the smell of food, the promise of affection from our friends, or when we read a headline about Ryan Gosling cuddling a puppy. But as soon as we get what we’re searching for, the dopamine levels in our brains decrease, and we’re left chasing after our next hit.

This is how young investors can get stuck in feedback loops—constantly moving money around trying to cash in on the latest trends. If you find yourself tempted to make these switches, remember that the time you spend in the market matters a lot more than “timing” the market. Slow and steady, kids.


How the media affects your money

Every day, millions of terrible, uplifting, and entirely mundane things happen simultaneously. And since we now spend a large chunk of our lives scrolling through feeds and reading clickbait headlines, this onslaught of information can easily set us on an emotional rollercoaster.

Will Trump tank the economy? Is the housing bubble about the burst? It’s easy to get swept up in the day’s media narrative and make impulsive, fear-driven decisions with your money. Or you might choose to just opt out of investing entirely. “To be honest, I find it overwhelming,” says Sean Price, a 27-year-old computer programer from Toronto. “I have no idea what kind of information I should be following. It’s a big part of why I don’t really do much with my savings.”

Frantically buying and selling—or not investing at all—are just as emotion-driven as maxing out your credit card to follow your new girlfriend to Osheaga. To act more strategically when you first start investing, hone in on the information that’ll actually be relevant to your own financial situation and try to forget the rest. “Become as informed as possible about the topic of investing,” advises White. “Figure out how much risk you’re able to take, research the options, and then get expert advice to make the best decision and ensure that you stay on top of your investments.”

In other words, do your homework, but leave your Twitter feed out of it.


Why you might want to add a “feelings” plan onto your financial plans

A solid financial plan will help you figure out where you should be investing, and give you reasonable expectations about what you’ll be getting in terms of financial returns. But you might want to also consider prepping for how you’ll feel about the results of said financial plan.

Let’s say that you predict you’ll make $400 a year after moving some cash into an investment. When you eventually get that return, it’s not going to feel nearly as great as randomly getting a $400 cheque from Grandma. To stop yourself from acting impulsively, remember that while you won’t always feel ecstatic when doing the sensible thing, you’ll generally feel more content. You’re playing the long game, after all.

“You’re putting away money for a long period of time, and you can’t really touch it or it won’t grow. You have to remind yourself it’s going to work out,” says Jared Ong, a 28 year-old community organizer. “Honestly, it’s not really that satisfying in the short term.”

Freaking out about your financial situation? Tell someone

We all know that burying feelings into that dark pit in your stomach just leads to greater problems down the line. But while sharing our mental health experiences is gradually losing its stigma, talking about our paychecks is still seen as a major taboo. “We like to brag about our purchases or gains in our investments, but we really don’t talk about money in an overall sense,” notes White.

If your student loans are keeping you up at night, tell your friends, family, or your therapist about it. This will relieve some of your emotional load, and help you to make more strategic decisions. And if you’re using a Financial Planner, be honest with them about how their investing suggestions make you feel. They’ll be able to address your concerns, and likely offer a more tailored plan that fits your needs.