Mind Games: Psychological Contagion

The coronavirus, much like the common flu, is a highly contagious entity that swiftly disseminates through society. We’re all well-versed in the precautions required to safeguard ourselves from viral contagions, such as practicing good hygiene and social distancing. But what about another kind of contagion, one that affects our financial well-being and investment decisions?

Investors, too, must be attuned to psychological contagions that can lead to rash decisions driven by emotions, collective behavior, and external influences. Just as we steer clear of carriers of physical illnesses, it’s equally important to distance ourselves from sources of financial contagion.

These carriers can include highly emotional individuals and the financial media, both of which can stoke irrational responses. Emotional investors often succumb to fear or greed, causing them to make impulsive choices that don’t align with their long-term goals. The financial media, with its sensationalism and constant updates, can exacerbate this issue, clouding our judgment and leading to biased decisions.

So, what precautions can we take to shield ourselves from these financial contagions? Here are a few strategies to consider:

  1. Distance Yourself: Just as you’d keep a safe distance from someone with a contagious illness, distance yourself from emotional market trends and sensational headlines. Avoid knee-jerk reactions that could lead to costly mistakes.
  2. Consider Bias and Incompleteness: When consuming financial information, critically evaluate its sources and potential biases. Recognize that news outlets often provide incomplete narratives, and take that into account when making investment decisions.
  3. Consult Your Team: Whether it’s a financial advisor, mentor, or a trusted friend with investment expertise, don’t hesitate to seek guidance and perspective. Discussing your concerns with someone who has experience can help you make more informed choices.

In conclusion, safeguarding your investments not only involves protecting your portfolio from market volatility but also shielding your decision-making process from psychological contagions. By distancing yourself from emotional influences, critically analyzing information, and seeking professional advice, you can navigate the investing landscape with confidence and prudence. Remember, we’re here for any concerns you might have, so feel free to reach out. Stay safe and stay smart in your investments.

If you’re considering working with us here at Mosaic, we invite you to learn more about who we serve and how we help them. You can also contact us with any questions you have.

By Anthony C. Williams, CWS, ChFC, MRFC, CLU | Investment Advisor Representative | President & Founding Partner of Mosaic Financial Associates & Orthopaedist Advisory Group | Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.

©The Behavioral Finance Network. Used with permission.