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No one can control the stock market or exactly how an investment will perform. And that lack of control can lead to making poor (and many times, emotional) investing decisions – like chasing performance, not diversifying, or moving into and out of the market (often at the wrong time).
While these reactions can be triggered by a desire to avoid risks, the results of these behaviours can pose the greatest risk of all -- not reaching your long-term goals. In fact, the biggest risk may not be market fluctuations themselves; it's our reaction to these fluctuations. That's why it's so important to have an Edward Jones advisor in your corner, helping you stay committed to your investment strategy.
Here are some common emotional investing behaviors that may derail your journey to reaching your long-term goals. By understanding the pitfalls of these behaviors, you can prevent making these.
Based on what the market’s been through during the past few years, we understand that you may have been hesitant or even anxious to regularly invest your hard-earned dollars. But history teaches us the importance of staying invested in good times and bad – and, if appropriate, adding good investments to the portfolio when prices are down.
Historically, when consumer confidence was low, stock prices were also low, and future returns ultimately trended higher. On average, stocks returned nearly 15% per year following a consumer confidence reading of below 75. When consumer confidence was higher, stock prices were higher, and future returns tended to be up only 6% on average per year.
So when you feel your emotions beginning to get the better of you, take a "timeout" and work with your Edward Jones advisor to review your goals before making what could be an emotional investing decision. Your portfolio and your future self will thank you.