Staying level-headed in investing

Investing isn’t just about numbers, stock picks and strategy – your mindset matters too, whether you’re focused on the short or long term. To reach your goals, it’s important to understand how your emotions can affect your decisions. But how do you stay in control of them when investing?

We all have biases that can cloud our judgement and hurt our returns. And because the stock market reflects the combined decisions of individuals, these biases can push prices far from a company’s actual value, like its sales and profits. This can then lead to big mood swings in the market – from over-the-top optimism to deep pessimism – and this can flip fast, catching investors off guard.

Read on to discover why keeping a long-term view and tuning out the short-term noise can help you stay on track.  

Navigating uncertainty

In today’s unpredictable world, staying calm is no easy task. At the start of the year, the new US administration moved quickly to make its mark, rapidly rolling out policies – showing no signs of slowing down – that have grabbed headlines and shaken up markets. This is all playing out against a backdrop of global economic and political uncertainty, making it a tough landscape for investors.

With so much scrutiny on every headline – and with volatility already running high – investors should prepare for more ups and downs as the narrative keeps shifting.

And when financial news is alarming, it can trigger a ‘fight or flight’ response, raising cortisol levels, a biological stress marker. The mental and physical effects of this news overload can include:

• Impaired decision-making: Elevated cortisol impacts the prefrontal cortex, which reduces our ability to think clearly, assess risk and make reasoned decisions.
• Memory issues: Stress over time can impact the hippocampus, the part of your brain that helps with memory. Being able to recall long-term information is important for staying focused on your investments over the years.
• Loss aversion: Stress can make the fear of losing money feel even stronger, which might lead to decisions that go against your long-term goals, like selling investments when the market drops. 

Dramatic headlines can also trigger an adrenaline rush, creating a sense of urgency and leading to impulsive decisions. Constant exposure to stressful news activates the body’s stress response, raising heart rate and blood pressure, which can affect your health.

Worrying about all these market disruptions can drain your energy, impact sleep and throw you off balance. That’s why maintaining a steady mindset can make all the difference.

Why our thoughts and emotions matter

Our thoughts and emotions therefore play a big part in investment decisions, and these can be shaped by the information we consume, especially with the influence of social media. The effects include:

• Cognitive overload: Too much information can overwhelm the brain’s ability to process what’s important, leading to “analysis paralysis” – where it’s hard to make a decision
• Emotional contagion: Strong market narratives can lead to investors adopting the prevailing mood, sometimes escalating the cycle of optimism or pessimism
• Emotional overreaction: Headlines that create alarm can provoke emotional reactions, pushing investors toward short-term decisions that jeopardise long-term goals. 

It’s no surpise then that what affects the mind also impacts the body, and vice versa – and that stress can play a key role in investment choices, making it easier to fall into these behavioural traps.    

Healthy habits

In uncertain times, sticking to solid investing habits is more important than ever. The world of investing can be complicated, but with the right foundations – such as a well-diversified portfolio – and strategies that help you avoid common pitfalls, reaching your long-term goals becomes more achievable. Here are a few things to consider:

1. Look at the bigger picture: Is your money being used in the best way? Are you investing it, or keeping too much cash?  
2. Keep your goals in mind: How does the latest news or data affect your progress towards your targets? 
3. Ignore the noise: Not every headline will affect the market – or your investments. 
4. Stay calm: Investors who stay patient through tough times often see good results in the long run (though past performance doesn’t guarantee future returns). These results can add up over time.
5. Look for opportunities: Even during difficult times, there are ways to grow your investments. Managing risk can help protect your money while you stay focused on your goals. 

Investing can be complex, but with a clear strategy, you can stay on course towards your long-term goals. With 2025 already showing signs of unpredictability, being prepared for whatever it throws at you could make all the difference.

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