Broker Check


July 10, 2023


Money is always an emotional subject and when our emotions get involved with our investments we often make wrong decisions. And that can be a costly mistake.

Yet while the financial industry is constantly preaching that "Past Performance is No Guarantee of Future Results," the reality is that we can learn a lot by examining the past, especially when it comes to our behaviors and the strategies employed by those with decades of successful investing experiences. But knowing what to look out for and knowing what to aspire to are both easier said than done.


Keeping emotions and investing separate seems almost impossible for many investors. When reacting too quickly and letting emotions cloud judgment, even the most experienced investors do not make the best decisions. However, keeping emotions in check may give you a better chance for more confident investment decisions.

Here are four tips on how to keep emotions and investing separate:

Tip #1: Set Financial Goals

It sounds so simple, but setting financial goals really is the first step to investing, and financial goals can keep emotions out of the picture if done correctly. Having goals will help you keep an eye on the big picture.

For example, if you are saving for retirement in 30 years, you know that you have more time to make up for any losses than if you plan to retire in 5 years. These goals can also keep you focused on what you need to do today to get there.

Tip #2: Stop Checking on Your Performance Every Day

Do you check up on your investments every day, sometimes spending hours figuring out how you're doing and what you could have done better if you had just moved your investments around? If so, you are just going to drive yourself crazy because all you'll really see will be market gyrations and mistakes you think you could have avoided.

Checking too often will not benefit your portfolio in any way, but it will cause anxiety. This is even more true if you own individual stocks as checking stock prices too often can cause you to panic, and you might make a snap judgment to trade. Instead, keep your checks to monthly or quarterly, and concentrate on sticking to your overall plan and goals.

Tip #3: Know the Risks in What You Buy

Again, it sounds so simple, but knowing what you are buying is crucial to help you avoid emotional setbacks in investing. Always do your own research before purchasing anything, even if you have outside assistance.

Understand what the investment is, how it will help you pursue your goals, what the risks are, and when and how to exit. Without your own research, you will not take full responsibility for your trades, introducing negative emotions.

Tip #4: Create a Professional Buffer

You can create some distance between yourself and your investments by putting a financial professional in the middle of the two.

By entrusting a neutral third party who can help you examine your situation objectively and encourage you to stay on track, you can hold yourself more accountable for the things that you can actually control.



How you arrange your financial life is important. But so too is how you live your life. The second part is unfortunately often neglected in financial planning. Would you rather own your own business? Travel more? Write a novel?

With an enormous amount of focus on investment returns and stock prices, one key question that financial professionals should ask their clients is this: "Are you trying to make a living or a life?"

Most of us clearly want to make a life, and so do I. Life means living the way you want to live.

Live the Life You Want

Ask any business owner their top reasons they run their own business and you will likely agree with all of them: control your destiny; choose the people you work with; take on the risk; reap the rewards; challenge yourself; follow your passion; get things done faster; personally connect with clients; and feel pride in something you own.

Financial professionals can help clients build the life that they want to live. Often one's money and values disconnect. A financial planner helps point out those discrepancies and highlight ways money can match values. Some professionals, however, take clients no further than that.

Some seem to believe that financial planning involves only planning the finances of our lives. Many planners cut right to the planning without exploring behind the money. Too bad, because identifying a client's deepest values makes it easier to talk about trimming expenses or increasing income.

Many people talk about their goals and values because they feel it’s pointless for their financial professional to make financial planning recommendations if they don't know what's important to them and how they want to live.

Plan for What You Want

Know precisely what you want in life. A financial plan can help you map your goals that lack a clear path.

  • First comes mapping out your big goals;
  • That is followed by costs of each of these dreams and a monthly breakdown of those costs, which might be less than you think;
  • You then look at expenses to see which ones correlate with your dream life.

You can afford what you want.

That's what the financial advisory industry should tell clients more often.



Warren Buffett, chairman and CEO of Berkshire Hathaway and revered as the Oracle of Omaha, releases his annual letter to shareholders in February every year.

While the entire letter is always great reading for all investors, here is an excerpt that articulates how Warren thinks. Keep in mind that the words are lifted directly from Warren's letter – so nothing is interpreted. It's just Warren's writings.

"In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned, capriciously switch from one to the other: Your message to potential customers must be consistent with what they will find upon entering your premises.

At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.

The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and "stories," they will not lack suitors. "Technicians" will confidently instruct them as to what some wiggles on a chart portend for a stock's next move. The calls for action will never stop.

Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a “positive-sum" game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original "selections."

Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded. All that's required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees. Still, investors must never forget that their expenses are Wall Street's income. And, unlike my monkey, Wall Streeters do not work for peanuts."

 Your Financial Professional


The key to comprehensive financial planning lies in following wise investment strategies, custom tailored to your personal aspirations. And while your financial plan should be tied to your long-term goals, short-term events need to be addressed too.

Your financial professional can help you keep your emotions out of your investing decisions and apply the lessons from The Oracle of Omaha. Further, you financial professional can help you balance long-term strategies and short-term tactics in order to help ensure that you are accounting for both.

That way you can have confidence in knowing that your money is working for you.


Nothing contained herein shall constitute an offer to sell or solicitation of an offer to buy any security. Material in this publication is original or from published sources and is believed to be accurate. However, we do not guarantee the accuracy or timeliness of such information and assume no liability for any resulting damages. Readers are cautioned to consult their own tax and investment professionals with regard to their specific situations.



Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by FMeX.

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