Fear of losses

If you’ve been following the news, you've probably heard that the market is experiencing the worst first half of the year since 1970. Do you get nervous when you read about market dips and constantly check your investments? And tempted to sell to avoid future losses? You are not alone.

As nicely summarized by Kahneman and Tversky in 1979, "losses loom larger than gains," people experience higher degree of pain of loss than pleasure from gain. That's why investors concentrate on short-term fluctuations in the market and react too negatively to recent losses. Investors end up taking investment decisions that are influenced by their emotions, based only on information captured in one moment in time.

Minute to minute notifications about market moves affecting your investments can be thrilling but it's important to not lose sight of your long-term investment goals. Various studies have shown that individuals that receive information about their investment performance too frequently have a higher tendency to make rash decisions and are at a higher risk to lose out on potential better long term gain.

When it comes to investing, information doesn’t always equal knowledge.

So, what can investors do to overcome the temptation to sell based on the fear of losses? As humans, it's natural for us to fear losses and we want to avoid future losses. Here are some tips that could help:

1. Acknowledge loss aversion

First step in dealing with loss - acknowledge it. Accept that losses in your portfolio can trigger a lot of unexpected emotions.

2. Learn to regulate your emotions

Know that emotions are part of the process and do not take any actions when you are overwhelmed.

3. Stick to your investment strategy

You had a plan and if you change your plan too suddenly, you might be exposing yourself to more losses.

4. Leave your smartphone in your pocket

While we live in a digital age and appreciate having all information at hand 24/7, to reap the long-term benefits of investing, leave your smartphone in your pocket and refrain from checking your investment performance too frequently.