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Are You a Disciplined Investor?

April 18, 2023

Disciplined investing can be challenging. Markets move up and down. One of the greatest challenges you may face is managing your emotions during volatile times. In fact, many of the most common mistakes that an investor can make can be traced back to one reason - emotions. When markets go up, investors tend to become overconfident and take risks they normally wouldn't. When they go down, they get nervous or even panic, and make hasty decisions they later come to regret. So why do people continue this behavior? Human nature gets in the way.

In September 2022, I wrote an article about financial theories, traditional vs. behavioral (Finance & Emotions – Where’s the Connection?). Where traditional theory follows the assumption that investors are rational and logical in their decision-making process, behavioral finance draws from real-world experience stating that investors have biases, are irrational, and their emotions play a role in the kind of decisions they make.

Basically, emotional decision-making can lead to making the wrong decision. News cycles driven by fear, uncertainty, and doubt can challenge even the most disciplined investor. Some headlines create anxiety, while others try to influence you into chasing the hottest fads and trends. But, by focusing on your long-term goals and taking emotions out of the decision-making process, you can better navigate through market volatility with confidence.

Having a disciplined long-term investment strategy may help make it easier to resist the temptation to let emotions control your reactions. It begins with understanding the best asset mix that will help you to achieve your objectives and involves selecting investments that are in line with an overall asset allocation and diversification strategy based upon your needs, goals, time frames and your ability to assume risk.

Periodic rebalancing of your portfolio keeps the risk level aligned with your objectives. Asset classes grow at different rates of return and are sensitive to different economic events, so it is necessary to periodically rebalance a portfolio to maintain the target asset mix and maintain the desired risk exposure.

The discipline of sticking with winning strategies through thick and thin may help make it easier to resist the temptation to let emotions control your reactions. During down times in the market, disciplined investors who stick to their guns and ride it out may be rewarded when the markets turn up.

The Ciccarelli Advisory Services team understands it’s only natural to have emotion involved when managing wealth. Sometimes it’s hard to think clearly when you are emotionally vested in the outcome, after all, we’re only human. We offer our clients objective counsel to balance their biases and potential blind spots. Before you make any decisions, use us as your sounding board, we are here to help guide you.