Managing our emotions is always a great skill to have, however, can it make us more money?
When it comes to investing the answer is clearly YES!
Whenever a financial advisor meets with a client to discuss investing, one of the first things we assess is their emotions regarding investments. Have they had a bad experience in the past? Do they get anxious with risk? These are questions that must be asked to offer the correct mixture of investments.
Now the problem comes when the inevitable happens. Stock market corrections, more commonly known as market crashes. All good things must come to an end and market corrections are unfortunate however necessary. Often times what happens during these times is that investors get scared of losing their hard-earned money and they start to pull out of their investments back into cash as soon as the losses start. The thing you need to know about the stock market is that when its a bull market (good) its like a slow but steady stream of water going into a bucket. But when the market crashes it's as if someone tipped the bucket over and most of the losses are quick. So by the time most people start taking their money out of the market they have already suffered the losses.
How to make money:
The simple answer is to be scared when people are greedy and be greedy when people are scared. Realize that even if the market goes down 20% although it may be scary you haven't actually lost any money until you withdraw it. There is a lot of money to be made if you are investing your cash into the market when it is down so you can have a higher stake in your favorite companies as they rebound. Unfortunately, no one has that crystal ball to tell them when the market will be at the lowest so we can buy. The best strategy is to invest with dollar-cost averaging.
Dollar-cost averaging is essentially you hedging your bets over a duration of time. This is commonly done by investing the same amount of money monthly so that whether the market goes up or down your investment is the same thus taking the emotions out. Another way you can do this is if you have a lump sum to invest and believe the next 6 months maybe a volatile time (elections for example) then you can take your amount and break it into 6 payments.
Using these tactics you can at least give yourself great opportunities to take your emotions out of the market and let your money grow. Hope it helps!