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Investment Psychology

Updated on October 5, 2016

The Universal Investment Mindset

Investing is a rational process but people tend to make it emotional, says an article by the Australian Investors Association. Psychology is an important factor while making a successful investment. While most investors think that all they have to do while investing is to find the right strategy of investing and follow their set plan, actually doing so turns out to be much tougher than planning it.

The emotions attached to your hard earned money and the complexity of investing can lead to an emotional failure at times. Controlling your emotions of fear, pride, greed, ego and denial is an important aspect, since these can cloud your judgment while investing.

Studies conducted on the psychological aspect of investing have revealed that people encounter twice the amount of pain while losing $1 than the pleasure of gaining the same amount. Some of the common mistake while investing include:

  • Being emotionally attached to your investment: This means that you get too emotionally attached, which can be a cause for bad judgment when it comes to investments.
  • Not following one strategy through: There are various investment strategies and instruments available. Try sticking to one and not abandon it as soon as there is a loss. No strategy gives 100% positive results.

Prevent Psychological Traps While Investing

According to Investopedia, a few of the psychological traps that one needs to avoid while aiming for successful investment are:

  • Anchoring – Relying too much on your original idea can be a psychological trap. The more flexible you are in your thinking, the better the investment you will make. Think rationally about the future of the investment and not just the current market scenario.
  • Sunk Costs – These are the emotional commitments that you hold towards your investment. It is better to move on rather than being attached to an investment that is fast losing its value in the market.
  • Superiority Trap – A lot of investors believe that they are good enough to know better than the market experts, thereby going ahead with a bad investment. This can be a very dangerous trap, since it can blind you with overconfidence and not let you see the reality.
  • Relativity Trap – This trap can lead you off the path, since everyone has a different psychology when it comes to investing. It is a good idea to keep track of what others are doing but letting it influence your decisions without realizing the consequences can be bad for your investment.

Safe Investing Options in India

With growth in the Indian economy, there is a large number of investment options available as well. Choosing the right investment option, which gives the maximum benefits to you and your family, is of prime importance, say experts at Life Insurance company. Life insurance is one such safe and reliable investment option, with the maximum benefits.

Life insurance in India will not just give you affordable premium rates but will also give you favourable returns at the end, depending at the tenure of your investment. Life cover also helps in securing the future of your loved one's by covering their financial expenses and burdens in case of any unfortunate event. Also a life insurance policy offers enough tax benefits, which when clubbed with the affordable premium rates, becomes the most viable investment option in India. The policy is also not affected much by the fluctuating market rates, thereby minimizing the probability of any kind of loss during your investment tenure.

To get the best rates and minimum of premium prices, one should take up a life insurance policy at an early age. Life insurance in India is undoubtedly the safest and easiest investment, with the least stress and psychological impact associated with it.

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