Investor behaviour during market fluctuations has a direct impact on their probability of success in equity markets. Individual investor behaviour is a reflection of market psychology.
By nature we believe we make investment decisions rationally however, our behavioural biases do not allow rational decision making especially in times where we see prospect of quick losses or gains. When the markets are rising, investors get greedy to earn as much as possible quickly. During such times, to avoid losses immense control is required on emotions such as ‘herd behaviour’ and ‘fear of missing out’ and greed.
On the other hand, fear in the market is visible when the markets fall steeply. When the markets start falling, a general panic is created in the market. This panic drives the investors to sell their investments in order to limit their losses. However, what they don’t realise is that the loss is not realised until the investment is sold.
Hence, you should remain focussed on the longer term goal and not react to short term trends. As an investor, you should avoid making impulsive decisions based on short-term market movements.
Learn how to protect your investment portfolio from market volatility:
- Invest in-line with your risk tolerance and always invest with investment goals.
- Diversification and Asset allocation – spread your investments across different asset classes to reduce risk.
- Stay Invested for the Long Term: Investing is a long-term strategy, and market downturns are a normal part of the investing cycle.
- Consult Your Financial Advisor to evaluate your options and make informed decisions.
