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6 Ways to Overcome Market Psychology

Leisl L. Cording, CFP®, CDFA®
Senior Vice President & Financial Advisor 

With the volatility of the financial markets in recent months, it’s no surprise that many investors have experienced some stress as a result. There’s actually a name for the emotional reaction to investing: market psychology. Overcoming market psychology is not easy but learning how the market works can reduce the number of surprises and increase the degree of success. 

Participation in the market has its ups and downs, but when you compare non-participation to participating with the right guidance and mindset the probabilities improve. So for market success, develop your awareness, work with a market professional for sound advice and investment guidelines, and keep these six tips in mind. 

1. Understand You Need To Invest Not Just Money But Also Time and Expertise

Costs include monetary and non-monetary investments. The monetary investment is comprised of transaction and brokerage fees. The non-monetary investment is the time spent learning about the market and understanding the investment process, along with managing the shifts between the increase and loss.

Much like the past, today’s modern portfolio needs the assistance and watchful eye of an experienced market professional. It’s not enough to guess or even estimate the changes – planning is necessary to anticipate the wins and the losses. Even if you're knowledgeable, you may be likely to react emotionally rather than strategically. That's where working with a professional can help.

2. Stay Aware of Market Trends

Market awareness can be defined as understanding what your goals are and how much time you have to achieve them, as well as understanding your risk tolerance to determine how to invest - more or less aggressively. 

Start by figuring out your financial characteristics, and what segment of the market works best for you. It takes an honest assessment of your knowledge, means, and objectives. For this reason, working with an experienced professional is a benefit – they are going to help ease the emotional and financial ups and downs.

There are two noted market trends – bear and bull. They are both related to volume shifts. Bear markets have prices falling accompanied by the urge to sell. Bull markets are steady and confident; prices go up involving rational decisions to buy or sell. Make sure how you're investing is aligned with your goals and risk tolerance. 

3. Understand Long-Term and Short-Term

The nature of the market is the volatility of prices rising and dropping. Our emotions share a similar reaction between excitement and depression. Surges of pleasure with favorable uptrends and negative feelings with declines. Keep in mind that what matters is strategizing for the long-term versus the short-term in accordance with your own risk tolerance and timeline of financial needs, and learning how the market shifts affect each.

  • A long-term strategy is noted for continued performance and consistent results.
  • A short-term strategy relies on cashing in on temporary boosts during times of high performance but is also subject to a high degree of risk of losing money during market downturns. Generally, the shorter the timeframe you have to work with, the more conservative your investments should be, in order to minimize risk and protect existing assets.

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4. Manage and Control

Unfortunately, emotions can be drivers for selling early (short-term) diminishing the significant gains (long-term). As we go through various phases in life so does the market. On the average upswing, markets have a lifespan of five years. It doesn't mean earnings stop entirely – but they could settle in with slower and more steady growth.

Here, diversity and multiple selections are necessary for a healthy portfolio. Don’t underestimate the value of the entire portfolio; one investment increase won’t stand alone over time.

5. Move Forward

Get over the past experiences and focus on the future. It's coming with or without your approval – better to be part of the plan and manage the calls so you can reap the benefits. Start slowly and build trustworthy confidence to reduce the risk and the stress, allowing the market to respond back to you - positively.

Questions to ask yourself: are you in the right market? Does your plan have a solid strategy built into it? If you have some concerns do yourself a favor and look for help.

6. Change Perspectives

Most individuals don’t always experience success immediately, and our mind begins to associate financial markets with negative emotions. Acknowledge the market is not just about winning and losing – it’s about strategy and duration.

The market will continue to do three things: it goes up, it goes down, or it stays the same. Talking with a market professional helps to manage the market's pluses. Working with one could change your perspectives and broaden the future's outlook. 

Don’t have an advisor? Get in touch with us at Weiss, Hale & Zahansky Strategic Financial Advisors, and we’ll show you how our Plan Well, Invest Well, Live Well™ process can help you reach your financial goals and dreams. You can request a complimentary consultation on our website or call us at (860) 928-2341. 

Presented by Senior Vice President, Financial Advisor Leisl L. Cording CFP®, CDFA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 

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