Investing is a great way to build wealth and acquire assets that could gain value over time. And 2021 has seen many new investors emerge into the market as part of the post-pandemic investing ‘boom’. As a result, 33% of the UK population now owns stocks or shares.
Despite the seemingly optimistic attitude towards investing in the UK, research by Barclays has revealed another side to the story. Specifically, it seems that many investors go on to regret their decisions after reacting impulsively to the market.
Here’s how to avoid regret and make investing decisions that your future self will appreciate.
Half of UK investors make impulse investing decisions
A recent survey by Barclays revealed that 50% of UK investors have made impulsive decisions. After doing so, a whopping 67% regretted their decisions. Impulsive investing is largely down to emotional attachment, which can take a huge toll on your ability to make rational judgements.
Topping the list of reasons for impulsive investing was social media pressure, with 32% of respondents being influenced in this way. Friends also played a role in impulsive decision making, with 31% claiming that they made rash decisions due to social pressures. And of those who reacted impulsively, FOMO (fear of missing out) was to blame in 30% of cases.
A whopping 47% of respondents said that they felt anxious about their investments. And two-thirds said that they feel excited when checking their portfolios. Both of these emotional reactions can result in irrational decision making.
How to avoid impulsive decision making
Separating emotions from investment decisions can be tricky because money is at risk. However, it is possible to take control of these emotions and reduce the chances of making impulse decisions that you will later regret. Here’s what you need to know about investing responsibly.
Stick to your strategy
One sure-fire way to avoid impulsive investing is to make a clear investment strategy and stick to it! An investment strategy is a set of rules that should be followed as you build your portfolio. The strategy will set clear boundaries for what not to do, and it could prevent you from making poor decisions.
Investment strategies don’t take emotion into account. All decisions highlighted by the strategy are backed by careful planning and prediction. Following your strategy, even in times of heightened emotion, will keep you on track with your portfolio goals.
Take time to think about your decision
Social media was the leading cause of impulse decisions in the Barclays survey. By this, respondents meant that the content that they see on social media encourages them to make investment decisions without really thinking things through themselves.
A good way to avoid this is to take time between seeing a social media post and acting on your portfolio. I recommend taking at least 30 minutes. During this time, you should try to clear your head and work out the security of investing. It is also a good idea to use this time to address your strategy.
After your time is up, consider whether or not to go ahead with the investment. By taking time between consuming content and making investment decisions, you should be able to look at the decision with a more rational mind.
Don’t use your main source of income
The more important your funds are to your financial wellbeing, the more emotional attachment you will have to your investment decisions. Consequently, you should try to only trade with money that you can afford to lose.
Work out how much money you need for expenses each month and only use the money that you have left over to fund your portfolio. Doing this will minimise your risks and allow you to keep a clearer head when making investments.
Take social media with a pinch of salt
Social media investors, influencers and even celebrities may promote certain investments across their platforms. Most of the time, these promotions will use impressive profit claims to grab your attention and encourage you to copy their investment.
Although some social media posts can be legit, it’s worth taking what you see online with a pinch of salt. This is because thousands of social media users are targeted by investment scams every single year. Don’t let the pressures of social media encourage you to deviate from your investing strategy.
The post 67% of investors regret their decisions: how to avoid impulsive investing appeared first on The Motley Fool UK.
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