Three ways to beat your emotions when you invest

Julie Brownlee, Fsp Invest, 19 Nov. 2014

Tags: investment strategy, strategy, emotions, investor psychology, how to beat emotions when investing, emotion beating strategy,

It’s hard to believe what a negative effect your emotions can have on your investments.

Fall prey to your emotions and you’re looking at a poorly performing investing portfolio.

So what can you do to beat your emotions?

Read on to uncover three strategies to help…

Three ways to keep your emotions from interfering with your investment success

Emotion beating strategy #1: Asset allocation and rebalancing

One way to beat your emotions is to use an investment strategy to help you invest and then stick to it.

You could opt for a risk parity strategy like allocating your capital into different types of assets, Keith Fitz-Gerald in Money Morning US explains. For example:

  • 50% of your cash in core assets;
  • 40% of your cash in growth assets; and
  • 10% of your cash in speculative positions.

Then take the time periodically to rebalance your portfolio back to these allocations.

By following an asset allocation model, you force yourself to buy low and sell high. And this strategy uses logic, not emotion.

Emotion beating strategy #2: Buy when the markets are in chaos

You should always have a list of great companies you want to buy into or increase your holding of if the price is right.

When the market goes through periods of correction, make sure you take the opportunity to pick up these shares at bargain prices.

Emotion beating strategy #3: Always use trailing stop losses

Trailing stop losses are a great way to protect your investment capital and control your risk.

And the best thing about trailing stop losses is they remove emotion from your decisions.

You could use a 25% trailing stop loss. When you buy a share, for example, set this. If the share price rises, so does the trailing stop loss.

As soon as a share hits your trailing stop loss, you sell.

So there you have it. Three ways to beat your emotions when you invest.

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