Emotional (un)Intelligence

Do our emotions work against us?

They can with investing. Put off planning and you’ll never start saving. It’s impossible to invest what you don’t have, and most people don’t save nearly enough. Of course the government doesn’t help—there are all sorts of disincentives, from negative short-term real interest rates to marginal income tax rates of almost 50% for many retirees. If the government is just going to take my savings anyway, why bother?

Nevertheless, it’s important to get started. Saving gives us options. But our own fears or doubts or arrogance get in the way once we begin. For example, most of us are loss-averse: the pain of losing money is a lot worse than the regret of missing gains. So we leave our money in safe, low-interest bank accounts rather than risk it in a volatile market, even though we know inflation is eating it away. To be successful, investors need to manage their own passions as much as they manage their money.

Shakespeare understands this well. His plays are full of characters undone by their emotional state. Macbeth’s fears lead him first to murder his king, then his best friend. Hamlet’s doubts prevent him from accomplishing his personal mission just when it might be successful. Coriolanus’ pride and disdain for the masses keep him from showing off when it might save him.

Their own flaws are what bring these heroes down. The lesson is that we need to have strategies for dealing with our fears, rashness, overconfidence, or procrastination. There are ways to do this: hiring a money manager, or avoiding listening to daily market chatter in order to stick to a long-term strategy. But we need to manage ourselves first.

Being emotional is part of being human. But we need to rule our feelings, not let our feelings rule us.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net
By |2017-07-17T12:34:16+00:00July 18th, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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