Did you jump out of the markets in 2008 or 2009 and continue to be so anxious that you didn't get back in? More than five years after it hit bottom on March 9, 2009, the S&P/TSX Composite Index (Total Return) has gone up approximately 116%, and yet some investors are still reluctant and sitting on cash.
Some of the emotional mistakes that investors make are:
Being overly influenced by the negative. Decision making is often greatly influenced by what is personally relevant, recent or dramatic. For many investors, this can mean that the unprecedented events of the 2008 financial crisis have left a stronger impression than the positive market returns of subsequent years. It's important for investors to rely on professional financial advice so they can focus on how best to pursue their long-term investment goals and not get too caught up in news headlines.
Following the crowd. Even if a particular stock or asset class is performing strongly, that doesn't indicate that it's the right choice. Investing in what's popular can cause people to lose sight of their long-term goals, resulting in more risk-taking than they may be comfortable with. Investors should consult an advisor before making any big investment decisions.
Playing it too safe. A strong desire to avoid market losses has driven many investors to move their money out of stocks and into cash or bonds. These strategies may have a negative impact on investment portfolios because the gains are eroded by inflation. Having a diversified portfolio with various asset classes, including domestic and global equities, will help you grow your investments over the long term.
