Sweaty palms. A slow, creeping feeling of dread. Perhaps even a moment of sheer terror. For most of us, that’s exactly what happens when we log onto our brokerage accounts and notice that the stocks and funds in our account are flashing red. It turns out that losses make us feel downright terrible.
And that’s a huge issue.
That feeling of dread while we’re losing money during a bear market or down day causes us to do some pretty silly things with our portfolios. For investors, overcoming that fear and having a steady hand are vital to getting the most out of our portfolios over the long term.
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Panic Sets Losses
Our brains play heavily into our investments. In fact, there’s an entire school of thought on the subject dubbed Behavioral Economics. In it, the science of brains comingles with our financial decisions; perhaps nothing else in behavioral economics is as important as the idea of loss aversion.
