Whenever there’s a crisis, it’s good to have an emergency plan, and when there’s a financial crisis, it’s good to have a financial emergency plan. When you’ve thought through a plan, it’s less likely that panic – or other “behavioral mistakes” – will lead you to react in ways you may be regretting for a long time.
While most investors say they’ll continue to hold on to their investments when there’s a sharp downturn (and many even say that they’ll add money when their investments go down), data tells a far different story. In December 2008, right as the market was near its lowest point, investors pulled out a whopping $10.6 billion from equity mutual funds alone.
Panicking during market bottoms is a form of “behavioral bias” that can have a devastating effect on financial health. While the S&P 500 has averaged around 10% a year, costly behavioral mistakes cause many individual investors to significantly miss those gains. That’s because, despite good advice, people still tend to put money in the stock market as it rises and pull money out as the market falls. The result: many investors buy at market tops and sell at market bottoms.
While none of us are immune to behavioral biases, there are several things we can do to help avoid costly mistakes.
Read more at Iris.xyz.