Making investments can sometimes be stressful. Now add a recession and you might be swept up in some pretty powerful emotions. If you feel yourself feeling this way, you should check out what several respected financial psychologists have to say.

• During stressful times (like a recession), people’s tendency to react emotionally to a situation is greatly exaggerated. Emotionally charged investment decisions usually do not lead to higher earnings.
• Behavioral finance tries to understand how people react to stressful situations and how they affect people’s investment choices.
• These ‘biases’ are hard to overcome – we are emotional beings, but understanding how emotions influence decision-making can reduce the degree and scope of their impact.

Facts & Figures

• The ‘anchoring’ bias is where an investor gets too attached to an asset and cannot make practical decisions involving it.
• The ‘loss aversion’ bias is where investors do not sell a falling asset because they would be acknowledging the loss.

Best Quote

“What was a great trait for surviving and thriving in the jungle doesn’t work so well in the stock market.” – Brad Klontz, Financial Psychologist.

Tags: investing, psychology, recession