How impulsive investing can cost you

Investing is a complex and challenging activity that requires careful planning, research and discipline. However, many investors fall prey to impulsive investing, which is the tendency to make hasty and emotional decisions based on short-term market movements, news headlines or personal biases. Impulsive investing can cost you dearly in the long run, as it can lead to poor performance, higher fees, increased taxes and missed opportunities. In this article, we will explore some of the common causes and consequences of impulsive investing, and how you can avoid it.
1. One of the main causes of impulsive investing is the lack of a clear and consistent investment strategy. Without a well-defined goal, time horizon and risk tolerance, investors may be tempted to chase returns, follow the crowd or switch between different styles and asset classes without a sound rationale.
This can result in buying high and selling low, which is the opposite of what successful investors do. A good investment strategy should be based on your personal financial situation, objectives and preferences, and should be aligned with your values and beliefs. It should also be flexible enough to adapt to changing market conditions and life circumstances.

2. Another cause of impulsive investing is the influence of emotions, such as fear, greed, regret or envy. These emotions can cloud your judgment and make you act irrationally, especially during periods of market volatility or uncertainty. For example, fear can make you sell your investments at a loss when the market drops or prevent you from investing when the market is low.
Greed can make you take excessive risks or invest in speculative or fraudulent schemes. Regret can make you hold on to losing investments or sell winning ones too soon. Envy can make you copy other investors or compare yourself to unrealistic benchmarks.
To avoid emotional investing, you should try to detach yourself from the daily fluctuations of the market and focus on the long-term performance of your portfolio. You should also avoid checking your portfolio too frequently or obsessing over news and opinions that may trigger your emotions.

3. A third cause of impulsive investing is the lack of knowledge and education.
Many investors do not have a sufficient understanding of the basic principles and concepts of investing, such as diversification, asset allocation, compounding, fees, taxes and inflation.
They may also lack the skills and tools to conduct proper research and analysis of the various investment options available to them.
This can lead them to make uninformed or misguided decisions based on hearsay, rumours or unreliable sources. To avoid this pitfall, you should educate yourself on the fundamentals of investing and seek professional advice if needed. You should also use reputable and credible sources of information and data and verify them before making any investment decision.
Impulsive investing can have serious negative consequences for your financial well-being and peace of mind. It can erode your wealth over time by reducing your returns, increasing your costs and exposing you to unnecessary risks. It can also cause you stress, anxiety and frustration by making you feel insecure, dissatisfied or regretful about your investment choices. Impulsive investing can also affect your personal relationships and health by creating conflicts, tensions or distractions with your family, friends or colleagues.

The good news is that impulsive investing can be avoided or overcome by following some simple steps:
• Define your investment strategy based on your goals, time horizon and risk tolerance.
• Stick to your strategy and review it periodically to ensure it is still suitable for you.
• Diversify your portfolio across different asset classes, sectors, regions and styles.
• Invest regularly and systematically through Euro-cost averaging or automatic transfers.
• Rebalance your portfolio periodically to maintain your desired asset allocation.
• Ignore the noise and focus on the long-term performance of your portfolio.
• Control your emotions and avoid making decisions based on fear, greed, regret or envy.
• Educate yourself on the basics of investing and seek professional advice if needed.
• Use reliable and credible sources of information and data.
• Enjoy the process and celebrate your achievements.

By following these steps, you can become a more rational, disciplined and successful investor who makes smart decisions based on facts, logic and evidence rather than impulses, emotions or biases.
You should also seek professional advice from a qualified financial adviser who can help you choose the best option for your circumstances and goals.

Carey Corbett Financial Solutions are Independent Financial Brokers specialising in pensions, mortgages, investments and retirement planning and can be contacted on 065-6893540