4 Ways Emotions Ruin Smart Investing with Dr. Art Rainer

Aug 8, 2024

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“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” - Proverbs 13:11

Patience is definitely a virtue, especially when it comes to investing. But too often, we allow our emotions to rule over us. Dr. Art Rainer joins us today to discuss four ways emotions ruin smart investing.

Dr. Art Rainer is the founder of the Institute for Christian Financial Health and Christian Money Solutions. He is a regular contributor here at Faith & Finance and the author of “Money in the Light of Eternity: What the Bible Says about Your Financial Purpose.”

The Impact of Emotions on Investing

We often hear comments like, “The market has been on fire! I’m putting more money in!” or, “The market is tanking! I’m taking all of my money out!” These reactionary decisions in response to market fluctuations are rarely smart. When it comes to investing, emotions are your enemy. Allowing them to guide your decisions will likely lead to buying high and selling low, undermining the growth of a solid retirement fund.

Let’s look at four ways emotions ruin smart investing so folks don’t fall into the emotional investing trap:

1. Emotions often focus on the present rather than the future.

While the present matters, we can become so consumed with day-to-day market volatility that we miss the big picture. Remember, we’re investing for the future, not today. Keeping your eyes on the future helps make market bumps seem less dramatic. So, limit emotional decision-making by focusing on long-term goals.

2. Allowing fear to take over during a down market.

When the market heads south, fear can suddenly overwhelm us. Fear-driven decisions rarely result in thoughtful, sound choices. We saw this in 2008 when many individuals pulled out of the market, vowing never to invest again. Most would now agree that their decision wasn’t the best. During a down market, fear is often your worst enemy. Not to mention that when the market is down, steady contributions purchase more shares to increase in value when the market recovers.

3. We can be overconfident during an up market.

Just as fear can hurt during down markets, overconfidence does the same during up markets. Before the dot-com bubble burst in 2000, we saw this overconfidence again in 2020. Upward-moving markets can make people view the market as free money. Investors who lack experience start buying riskier investments, and those who have never been in the market jump in, not wanting to miss out. This overconfidence can be as devastating as fear.

4. Feeling regret when looking back on past investment decisions.

You fear the drop and miss out on the gain, or you’re overconfident and suffer significant losses. This regret can lead to overcorrection in future decisions. While regret can help us learn, it’s crucial not to let it dominate our actions. The Bible says that saving is wise, so be wise. Save and invest for the future, but don’t let emotions drive your decisions.

Becoming a Certified Christian Financial Counselor (CertCFC)

Certified Christian Financial Counselors (CertCFC) help individuals and couples discover and pursue God’s design for money. Practically, Certified Christian Financial Counselors (CertCFC) guide individuals and couples in making wise financial decisions, building sound financial habits, and increasing their biblical financial literacy.

If you’d like to learn how to become a Certified Christian Financial Counselor (CertCFC), you can go to ChristianFinancialHealth.com.

If you need help creating a spending plan and want to work with a Certified Christian Financial Counselor (CertCFC) to get your finances back on track, go to FaithFi.com/Find.

On Today’s Program, Rob Answers Listener Questions:

What do I do with the $100,000 in my 401(k) from my previous job? I'm unsure if I should leave it there, roll it into my new employer's 401(k), or move it to an IRA. I want to make sure I'm making the best decision for my retirement savings.
My question is about assigning a power of attorney. I don't have any family members I can ask to serve in that role. What do you recommend I do in this situation?
My question is about the trust protector role that my attorney has assigned themselves to my trust and will document. I'm unsure what that means or if I should move forward with them in that position. Can you explain what a trust protector is and whether I should be concerned about that?
During some slow months at my sales job, I've had to borrow money from family members to cover my mortgage and bills. When I get my next commission payment, I'll only have enough to pay back what I owe. I'm worried that if something were to happen to me, my kids would be affected by the debt I owe. I want to honor God with my finances, but I'm not sure what the right thing to do is in this situation. Can you provide any advice?

Resources Mentioned:

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