How to control our emotions when investing in mutual funds

Every time the market hits an all-time high, many investors get jittery. 

Questions like “should I book profits now?” “Should I stop investing now?” start doing the rounds in social media. This article discusses a simple way to handle our emotions when investing in mutual funds or any capital market-linked product.

The adage, “show me your friends and I will tell you who you are” can easily be modified to suit investors who ask seek counsel on social media: “ask your question, and I will tell you how well planned you are”. Yes, most people who ask questions in personal finance forums on Facebook want to manage money without a plan (and often get angry when we point out the obvious).

Members of this group admitted in a poll (held months before the March 2020 crash) that 1st-time investors would never buy MFs if they knew about risks! So poor understanding about the product and unrealistic expectations are the most common reason investors abandon mutual funds, buy every shiny fund they come across etc. 

This lot is beyond redemption and is not the subject of this article.

Let us focus on investors’ who appreciate 

(1) why they need equity in their long-term portfolio; 

(2) the importance of goal-based investing and asset allocation. 

Many such investors find it hard to stay focused after investing and worry about doing the right thing.

 We shall consider an idea which appears to be an oxymoron at first sight: emotional logic. It is only an idea, and like all ideas hard to implement, however, my hope is at least a few reading this would appreciate its value the next time they think of deviating from their investment plan.