Are you an emotional investor? Emotional investing occurs when investors make drastic decisions about their money and assets based on a feeling of how the market is performing.
When I was a financial advisor many years ago, we all were looking for the next big investment. Some of us were big on tech stocks. others were focused on bonds. A few preferred penny stocks. We all had our specialties, and we ALL liked IPO’s. We also remembered something very important about investing:
Don’t pick stock with our emotions, pick them with logic.
Which brings me to today and bitcoin.
The Allure of Bitcoin
Every day, I get asked about bitcoin. People ask me if I’ve seen the price, or if I’ve bought some. I see many posts on social media touting the benefits of bitcoin and why everyone should buy it. As I type this, bitcoin is up +753.1055 points, making it 33,494.926. Here is the current chart on bitcoin:
This is undoubtedly an impressive run. Many people are expecting the cryptocurrency to go even higher in 2021. Will it go higher? Time will tell.
As the price rises, more and more people will become interested in the cryptocurrency. If history repeats itself, excitement will soon reach a fever pitch. it will be the biggest topic of discussion on the news, on social media, and everywhere in between.
There’s nothing wrong with that. Truth be told, we really need something to be excited about. The virus has caused enough havoc. But at the same time, people must resist the urge to let their emotions cloud their judgement.
Invest With Logic, Not Emotion
Should a person buy bitcoin? That’s a decision each person should make on their own. This post is not endorsing or condemning the cryptocurrency. The goal here is to warn people to keep their emotions in check.
When I was a financial advisor, we saw hot stocks often during the big tech boom of the early 2000’s. Every day, we saw stocks going up to new highs. Excitement was at a fever pitch. The excitement back then reminds me of what I see today.
There is a good change bitcoin will continue to rise. But there’s also the chance it can drop as fast as its risen. Instead of letting your emotions dictate your investing habits, keep the following in mind:
- There will be other great investment opportunities. If you believe the price is too high, don’t fret: Bitcoin is not the only investment that is performing well. The stock market is at an all-time high, with many stocks outperforming. The key is to do your homework and look for other investments that are doing well and fit your investment goals and strategies.
- Be patient. No investment ever goes straight up forever. Every investment has a pullback. early investors tend to lock in their profits and sell at some point.
- Understand why you’re investing. Why are you buying this investment? Are you doing it because everyone else is, or because you believe in the product? Be very careful following the crowd. Just because they do it doesn’t mean it’s right for you. Study the product you want to invest in before doing anything.
- What type of investor are you? Some people invest for capital gains, which means to invest for profits. Others invest for cash flow, which means to buy assets and receive monthly income or revenue. The type of investor you are will play a key role in your investment decisions.
- Have an exit strategy. Whatever you choose to invest in, have an exit strategy. Set up a stop-loss to lock in profits. Consider selling a portion of your investment if it reaches new highs. Don’t just have screenshots to show how much money you had before the stock dropped.
- Do something. In 2021, this is more important then ever. There is something going on in the economy that we MUST be aware of. Personally, I don’t have any bitcoin. Instead, I buy gold and silver. While everyone is excited about bitcoin, I’m not concerned because I have something else to invest in and protect my assets if the economy crashes. Maybe one day I will invest in the cryptocurrency, but until then, I’m happy with precious metals.
The world is changing right before our eyes. It’s critical we understand what’s going on and prepare accordingly. See my recent post on the Bretton Woods Agreement:
As the markets reach new highs, its easy to get caught up in the excitement. Resist the urge and stay calm. Remember why you’re investing and make your decisions with logic and emotion. Your bank account (and nerves) will thank you.
There are many investments and investment strategies out there. The more you know, the better off you will be as an investor. Many of the best financial tips are not taught in school. Get more information on investing and passive income in my book Invest For Success: Millionaire Wealth Strategies Not Taught in school. Available on Amazon.