Emotions can mess up an investment plan. Beware of 6 irrational ways to make decisions
It’s hard to say if now is one of those calms before the storm. But at the least, it’s a period of relative calm after the coronavirus-induced stock market plunge in February and March and the robust rally that followed.And that makes it a decent time to assess how you might have messed up your investments by selling hastily or taking other irrational actions.”We’ve had a severe recent drop … that makes this stuff real important,” said Steve Wendel, head of the behavioral-science team at Morningstar that studies how emotions can derail investors.If you work with a financial adviser, that person should be helping to guide your actions. Wendell spoke primarily to advisers during an online meeting this week hosted by Morningstar, but do-it-yourself investors also can learn from the discussion.Are you financially stressed right now?What to know about options, from debt negotiation to bankruptcyBehavioral finance is a field that examines how people make decisions, with special attention to irrational ones. Researchers have identified more than 100 biases or tendencies that lead to poor decisions, said Samantha Lamas, a behavioral researcher at Morningstar. Here are six prominent ones gleaned from their online discussion and from a research report focused on behaviors and volatility that Morningstar compiled in the wake of the market’s selloff:1.