6. Keep your emotions in check
Be aware of your emotions and behavioural biases
Human investors are prone to making decisions based on emotions and psychological biases. We can get greedy and stray beyond our normal risk tolerance, latching onto investment trends that aren’t always founded on much more than hype. The dot-com bubble in the late 1990s and early 2000s, when investors piled into companies linked to the early internet only to see their values plummet, is a good example of allowing hype to trump reason in investing. More recently, so-called 'meme stocks' – shares in companies that garner the attention of retail investors from social media – have also created a frenzy.
Other psychological biases include 'loss aversion', where investors stick with bad investments for too long waiting for a recovery, and 'confirmation bias', which sees investors looking for information that confirms their own beliefs and ignoring opposing viewpoints.
It’s impossible to completely rise above natural emotional responses to market movements. That’s why having a balanced investment plan with objectives, and the support of investment experts, can be especially important to investors.
Keep your head, especially when others don't
At some point, your investments are likely to be negatively affected by factors beyond your control. The natural response to an equity market setback may be to follow the herd and sell, but this is often the wrong decision.
It's understandable why some investors opt to sell and try to limit their losses. But many developed markets tend to bounce back and reward investors for keeping their heads. A market drop can even present a golden opportunity to invest in quality assets at a discount to recent prices.
When other investors are losing their heads, it usually pays to stick with your investment plan. Avoid tinkering with your portfolio settings.
Be careful where you get your information from
The internet is awash with news and commentary that can be used to inform investment decisions. Investors often exchange tips and views on message boards, while artificial intelligence is a growing source of online information. Criminals posing as advisers can – and do – extract wealth from savers through scams.
Be careful with how you inform your investment decisions. Seek advice only through qualified financial advisers (you can check if a firm is authorised to provide advice via the Financial Conduct Authority’s register).
Risk warning
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. Pension, ISA, JISA and LISA eligibility rules apply. With LISAs, govt withdrawal charges may apply.
Nutmeg does not provide tax advice. For personalised advice tailored to your specific situation please consult with a qualified tax adviser or financial planner. If you are unsure if a pension is right for you, please seek financial advice.
Nutmeg provides 'restricted advice', which means we will only make investment recommendations on the products and services that we offer.