Five mind tricks to make you a better investor

Mind over Matter: Practical steps are only part of the battle

It’s a difficult time to be an investor.

Millions will feel the pain as their portfolio falls in value as most stock markets around the world have fallen so far this year.

Investors will also experience a roller coaster ride of emotions due to the high volatility that is setting in.

There are many practical steps you can take to protect your portfolio, as we outlined in Wealth over the past few weeks.

Measures like making sure it’s balanced — across asset classes and stock markets — and that you’re keeping investment costs down and investing for the long term.

However, practical steps are only part of the battle. Dealing with emotions is also necessary to stay on the ball in such a difficult time.

Louis Williams is the Head of Psychology and Behavioral Analysis at financial software company Dynamic Planner.

He says, “Our emotional resilience, confidence and optimism – despite what’s happening around us – is key to getting back up and being agile during these challenging times for investors.”

Williams believes that investors who are able to successfully navigate times of financial turmoil have important qualities in common.

Here are our tips to develop such mental skills to better weather future investment storms.

1. Familiarize yourself with uncertainty

Investors must calculate a seemingly endless list of unexpected events – from a global pandemic to the invasion of Ukraine and soaring prices. This lack of control and predictability can trigger anxiety.

A natural reaction can be to try to take control by selling investments and turning your back on the chaos.

However, this simply locks in losses and cuts off our ability to take advantage when equity markets recover.

So the key is to find other ways to come to terms with the uncertainty. Instead of focusing on the latest twists and turns, step back and look at the bigger picture.

There have been numerous market slumps throughout history and prices have always bounced back. It may take some time – but usually there is a recovery.

Greg Davies is Head of Behavioral Finance at the advisory group Oxford Risk.

He says, “In turbulent times, there’s a huge gap between making the decision that feels comfortable to me in the short-term – sell – and the decision that’s right for my long-term needs – holding on.

“As humans, we constantly deviate from good long-term decisions in order to achieve the emotional comfort we crave in the short-term. This is costly – we are effectively buying emotional comfort by sacrificing financial performance.”

But he believes individual investors have one major advantage over professional investors: time. “Benign neglect — just leaving things alone — can be a very powerful investment strategy,” he says.

You can’t change how stock markets behave, but you can control how much you pay in investment fees and taxes. So make sure you use your allowances, such as B. the Individual Savings Account, which allows you to invest up to £20,000 tax-free each tax year.

2. Learn to regulate your emotions

It’s hard not to let your emotions be shaken by rising and falling markets. After all, portfolios are not just money, they are our means of financing dreams, vacations, family and retirement.

However, emotions can sometimes cloud our judgement, for example by causing us to react too quickly when we are worried.

If you’ve built a well-diversified portfolio over the long term, there’s no reason to review it regularly.

Emma Maslin, Money Coach and founder of personal finance website The Money Whisperer, says: “In a world where we’re used to checking phone apps multiple times a day, it’s all too easy to speculate about the value of our investments to be alert.

“But investments are long-term, and investors shouldn’t need to review their investments too often, let alone multiple times a day. Maybe delete your investment app if you tend to check it frequently and get annoyed.

Remember the good times too. Your portfolio may have fallen in value this year, but it’s likely to have increased over the past three years. In a larger context, it might not look so bad after all.

Clive Beagles is Senior Fund Manager at JOHCM UK Equity Income mutual fund.

He says: “During periods of market sell-off, the natural human response is to shorten our time horizon and focus on short-term negative disruptions.

‘At such times when our instincts may lead us astray, a well-established investment process can help avoid behavioral pitfalls.’

3. Increase your self-confidence

When the value of your portfolio falls, it’s easy to see that as a reflection of your skill as an investor.

A lack of confidence in your financial plan can increase the risk that you start optimizing and going off course.

So think about why you made individual investment decisions in the first place. If your motivations haven’t changed, you can be confident that you’re still on the right track.

Also whoosh. By reading about why your portfolio is falling, you should reassure yourself that most investors are in the same boat.

4. Curb your impulse to trade rashly

Investors often mistakenly make rash decisions based on emotion rather than strategic thinking. That is normal. But there are things you can do to limit or prevent the damage that occurs.

First, think about what makes you trade a particular investment.

For example, are you interested in buying because it’s the right investment for you, or afraid of missing an opportunity where you see others making a huge profit? Don’t be influenced by the decisions of others.

Second, instead of adding lump sums, feed money into your portfolio.

This way you minimize the risk of a market downturn, especially when you have invested. It also saves you from trying to time the market, which is an almost impossible task.

5) Increase your resilience with a cash buffer

Don’t invest money that you will need soon. Market slumps are stressful enough, but when they wipe out money you could use to live against a backdrop of rising prices, they can be particularly painful.

Before investing more money in the financial markets, make sure you have a healthy cash safety net in place.

Before you start investing, you should have about three to six months of cash spending — or more if you use your investments for life (say, in retirement).

By having a cash buffer, you don’t have to sell when markets fall and lock in losses.

Pay off unsecured debts too. Reducing debt improves your financial resilience because you are less vulnerable if interest rates continue to rise – as forecast – or your income falls.

Compare the best DIY investment platforms and stocks & stocks isa

Investing online is easy, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investment platform, Stocks & Stocks Isa, or a general investment account, the range of options may seem overwhelming.

Each provider has a slightly different offering, charges more or less to trade or hold stocks, and offers access to a different selection of stocks, funds, and mutual funds.

When weighing up the right one for you, it is important to consider the service offered, as well as management and trading fees and any other additional costs.

To help you Compare investment accountswe’ve got the facts together and put together a comprehensive guide to choosing the best and most affordable investment account for you.

We’re highlighting the key players in the table below, but recommend doing your own research and considering the points in our full guide linked here.

>> This is Money’s complete guide to the best investment platforms and isas

The platforms listed below are independently selected by This is Money’s trade journalists. When you open an account through links with an asterisk, This is Money earns an affiliate commission. This does not affect our editorial independence.

administration fee fees notes fund trading Trading Standard Stocks, Trusts, ETFs Regular investing Reinvestment of dividends
AJ Bell YouInvest* 0.25% Max £3.50 per month for Stocks, Trusts, ETFs. £1.50 £9.95 £1.50 £1.50 per quote More details
best invest* 0.40% Reduction of account fee to 0.2% for ready-made investments Free £4.95 n / A n / A More details
Charles Stanley Direct 0.35% No platform fee for shares on one trade this month and annual maximum of £240 Free £11.50 n / A n / A More details
loyalty* 0.35% on funds £45 fee up to £7,500. Max £45 per year for Stocks, Trusts, ETFs Free £10 Free funds £1.50 stocks, trust ETFs £1.50 More details
Hargreaves Lansdown* 0.45% Capped at £45 on Stocks, Trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More details
Interactive Investor* £119.88 as £9.99 per month £7.99 per month back in trading credit £7.99 £7.99 Free €0.99 More details
iWeb €100 once £5 £5 n / A 2%, maximum £5 More details
free trade* Free for standard account £3 month for Isa Freetrade Plus with more investments is £9.99/month incl Isa fee No means Free n / A n / A More details
vanguard 0.15% Vanguard funds only Free Free only Vanguard ETFs Free n / A More details
(Source: June 2022. Management fees are stated annually, can be monthly or quarterly)

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Five mind tricks to make you a better investor

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