Our emotions affect our investment decision making in countless ways, which can have a very real impact on our long-term financial goals. One of the most powerful ways our emotions affect us is through our appetite for risk. When markets are calm and returns have been positive, our brain tells us that it’s okay to take on more risk in hopes of achieving higher rates of returns. The opposite is true as well. When markets become volatile and returns have been negative, our brain tells us to take less risk in hopes of removing the possibility of further losses. In the article “How Stress Hormones Impact the Behavior of Investors,” Smithsonian Magazine’s Joseph Stromberg summarizes how our body can take control of our emotions and bias our decision making during volatile market periods. The primary culprit, the release of cortisol into our bloodstream, has the ability to sway our decision making abilities and cause us to act in ways that are detrimental to our own long-term financial success. Understanding this emotional response, and anticipating these emotions, may allow us to react more rationally the next time we experience major periods of market volatility.
NOTE: The articles and information at the above links contain the opinions of the author(s) and those interviewed by the author(s) but not necessarily Carlson Capital Management and does not represent a recommendation of any particular security, strategy or investment product. The opinions of the author(s) are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. These articles are distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.