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!

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www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

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