Psychologist explains how to calm stock market fears and build a savvy investor identity. They discuss managing volatility, challenging stereotypes in the financial industry, understanding investor identity, the importance of financial literacy, seeking reputable sources, involving others, and having a plan.
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Quick takeaways
Herd behavior plays a significant role in market volatility, as individuals tend to follow the moves of key players, amplifying fluctuations.
Managing investing anxiety involves focusing on long-term goals, avoiding excessive monitoring, and seeking professional guidance to make rational decisions.
Deep dives
The current state of the US stock market and its volatility
The US stock market experienced volatility in 2018, leading to investor anxiety and reluctance to invest. The slow and steady climb of the market, combined with political concerns and global uncertainties, has contributed to the current state of volatility.
Herd behavior and its impact on market volatility
Psychological research highlights the influence of herd behavior in the sudden shifts from stable to volatile markets. Herd behavior occurs when a few key individuals make moves, prompting others to follow suit and creating a cascading effect. Investors tend to be more wary of volatility when the market is declining, showcasing the psychological impact of previous financial crises and the fear of potential losses.
Managing anxiety and emotions in investing
Managing investing anxiety is crucial to make rational decisions. The tendency to focus on short-term fluctuations and day-to-day market performance can cause investors to miss the bigger picture and make emotionally driven decisions. Financial advisors emphasize the importance of focusing on the long-term goals, avoiding excessive monitoring and short-term reactions, and maintaining a balanced perspective to ensure successful long-term investing.
Investor identity and the importance of self-awareness
Investor identity involves understanding one's values, motivations, and investing personalities. It is essential to recognize one's strengths and weaknesses when it comes to investing. Developing a clear plan and purpose, knowing oneself as an investor, and seeking professional help or advice can help individuals overcome peer pressure, manage emotions, and make informed investment decisions.
2018 was the worst year the U.S. stock market has seen since 2008 and worries about the economy are continuing in 2019. How do you deal with anxiety in a volatile market? Psychologist Frank Murtha, PhD, co-founder of MarketPsych, a consulting firm to the financial industry, explains how to calm stock market fears and ways to build a savvy investor identity.