Last week I was reading the insert that came with my retirement investment statement and found myself drawing parallels between the lead article on behavioral economics and how we use/misuse emotions when making decisions, financial or otherwise. The decisions you make about your relationships, your work, what to eat for dinner… are the deposits and withdrawals in your life’s “long tem investment plan.” You want to make the best decisions for the long and short-term.
I put a lot of stock in emotions and intuition as tools to guide decision-making. Heck in many ways they are the most precious assets I use in my own and my clients tell me I am the person they go to balance out their heart and head. Using emotions as the only tool can sway us to unhelpful extremes. Emotions are like a barometer they let us know what is blowing up, settling down and if there are peaceful tranquil days are ahead. You can’t will sunshine to follow you when there is a deluge happening, just because you want to believe is a sunny day. Here are 3 strategies to balance your emotions with other information and ensure you are making good decisions for your “long term investment plan”.
Avoid information overload. When faced with making an important decision, it is easy to be over saturated by advice, suggestions and information from family, friends, and the 24 hours media available to us. Cautionary tales and conflicting information is abundant. In particular many media network seems to fuel themselves on negative that play on your emotions. An abundance of information can be paralyzing. Step back, take account of the source of information, note any trends you are hearing and at some point you make the best decision you can with the information you have at the time.
Avoid “all or nothing” mentality. When times are volatile or changing rapidly it is easy to be seduced into an extreme position. At one pole, doing nothing- “What difference does it make.” At the other pole, frantically doing everything you can to try to control every- stop you can’t control everything. You are not omnipotent (and who wants that pressure anyway?). Neither is particularly rational approach. Take some deep breaths and them some small steps to weather the storm.
Apply the 24-hour rule. Impulse buys and decisions we have all made them without taking time to step back and consider the big picture. It is one thing to buy a new pair of pants (unless they are $5,000 pants and your annual income is $60,000); it is another to rush to sell the majority of your retirement investments. Tempted to make a rash decision about something big? Wait 24 hours, take in the big picture and then decide what to do.