An increasing number of people are being driven to make extreme investment decisions due to stress in the financial markets that, ultimately, could impact their wealth.
All major markets are currently in bear territory and highly vulnerable to coronavirus-related developments.
As such, driven by the unprecedented circumstances, more and more people have become more extreme in their investment decision-making over the past few weeks.
Since the outbreak of the COVID-19 pandemic, the world has changed dramatically which has, of course, directly affected the investment landscape.
Consequently, it is prudent for investors to keep track of the rapidly changing situation.
Nevertheless, the unparalleled, emotional and sweeping nature of the situation is driving many investors into two different camps: overaction or inaction. Both could end in catastrophe for long-term investment strategies.
Those who fall into the over-action camp are viewing everything – irrespective of established benchmarks and criteria – as a huge buying opportunity.
Overconfidence and overleveraging can result in poor investment choices, as we saw with the dramatic market sell-offs as the dot com bubble burst in 2000 as well as the 2008 global financial crisis.
However, at the other end of the spectrum, there are investors whose decision-making has been surpassed by fear.
Indeed, an overly negative stance is leading too many investors to do very little or even nothing at all, to generate and accumulate wealth.
They fear a global recession affecting corporate earnings, and that this indicates there’s currently no value in the market. Therefore, they are waiting on the sidelines, potentially missing out on key opportunities.
A high number of investors are being driven by their emotions, which can result in either over-action or inaction.
However, now more than ever before, emotions should not be the focus within the process of investment decision-making. Keeping a cool head and maintaining a long-term strategy are the best ways to manage market shocks.
There is always a better way to make investment decisions than fuelled by emotions, which is why many investors opt to use strategies that lock them into an investment approach that overrules any fluctuations in their mindset.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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