Are You an Emotional Investor?
Scott Summerford, CPA, CFA, CFP®, Director of Investment Policy and Research, 1st Global
“Emotional investing” means making investment decisions based on emotional reactions,
and not discipline and reason. These behaviors hinder your ability to make sound
decisions and may cause you to make frequent changes to your investment program
or abandon it altogether. For example:
• You make investment decisions based on a shortcut to information such as a rating:
“This is a five-star fund, so it must be good.”
• You believe that if a company is famous, popular, or you like its product, investing in it
is a good idea. “Coke is my favorite drink; therefore, it’s a good investment for me.”
• You cling to familiar experiences and investments, even when no longer appropriate:
“Buying Investment A was profitable once; I’ll buy it again.”
• You follow the social consensus in choosing investments, even if irrational:
“Everybody owns XYZ Funds! They must be safe.”
• You make buy and sell decisions influenced by fear and greed. You may sell winning
investments too early (“I’d better take my profits!”) or hold losing investments too long
(“If I wait long enough, I can make my money back”).
• You respond to financial media without reasonable basis: “So-and-So on TV said the market
was overvalued! We’d better sell.”
• You assume that using many advisors or different funds or fund families in the same
asset class means you are diversified: “I own four different U.S. Large Cap mutual
funds, so I must be diversified.”
• You select only U.S. investments, despite the fact that U.S. stocks represent only
48 percent of the value of all the stocks in the world.
Investing can be an emotional activity, but it doesn’t have to be. Your wealth management advisor
can establish a customized IMS program to help you:
• Identify the personal investor profile that reflects your unique needs and circumstances.
• Adopt a written investment policy statement—a comprehensive blueprint for your
investment program.
• Determine an appropriate asset allocation. Asset allocation is the single most important
determinant of portfolio returns and the basis to a disciplined investment program.
• Set regular meetings to review your portfolio’s progress, discuss changes in your life
situation, and explore additional wealth management issues affecting you.
With a trusted wealth management advisor as your coach, you have the expertise, discipline and
confidence to create a lasting plan for future success. Talk with your wealth management advisor
today and begin the work towards a disciplined investment program, IMS, that helps you avoid
the pitfalls of emotional investing.
Securities offered through 1st Global Capital Corp. Member NASD/SIPC
Investment advisory services offered through 1st Global Advisors, Inc.
