I can’t remember where I first saw the above graphic, but it has stuck with me because it captures the emotional challenge of investing. Many investors swing between elation and fear and change their investment approach. This is a good way to miss your financial goals. Right now, many people seem to be on the downward slope. Somewhere between “concerned” and “alarmed.” Where are you on this cycle?
There are two suggestions to make about this graphic as you study it:
- Set your investment approach based on your time horizon and risk tolerance and stick with it. Unless one of these items changes, there is no reason to change your investments no matter where you find yourself on the emotional rollercoaster.
- If you’re saving for a long-term goal (kids’ college expenses, retirement, etc.), consistently saving each month is one key to success. Don’t let your emotions force you into stopping your contributions. Keep putting aside money for your longer-term goals regardless of where you are on the emotional cycle.