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Why is Risk & Emotional Management So Important to Learn for an Early Investor

Why is Risk & Emotional Management So Important to Learn for an Early Investor

“If you cannot control your emotions, you cannot control your money.”

If you are a first-time investor, these words of wisdom by legendary investor Warren Buffet should act as your guide in the world of investment. That’s because to become a successful investor, you must master emotional investment risk management. Why? Let’s dive deeper to understand the importance of risk and emotional management in investment.

Understanding risk and emotional management in investment

Let’s face it. Our emotions can often get the best of us and become a hindrance, especially when you are supposed to make an important life decision. The same holds for investment decisions. During uncertain episodes, the investor’s psyche and emotions can often overpower rational thinking. But this is not your fault as the human brain is wired this way and is subject to mental errors.

For instance, when the market is falling, you may fear losses and redeem your fund units under panic. But another approach in this situation can be to buy more when the market is low so that you reap the benefits when the market goes up again.

Therefore, investment emotions management is a critical concept that you must learn early on. To combat mental errors, you must be patient and always look at the bigger picture when investing your hard-earned money.

Additional Read - Should Younger investors take more risks?

How to control emotions while investing?

Getting a grip on your emotions is perhaps the most crucial lesson to learn for an early investor. Although it may sound impossible at first, following these straightforward tips can help your investment journey tenfold.

Identify your investment goals

Perhaps you wish to buy your dream car or build a house for your family. Whatever your financial goals are, you must make your investment decisions accordingly. Understand the risk of investing in any mutual fund scheme and what it means for your investment goals.

Once you are clear about your objectives, formulate an investment strategy for the long run and revise it from time to time to ensure you are on the right path.

Prioritise diversification

As you know, the number one rule of risk management in investing is diversification. That’s because if one investment fails to generate expected returns, you will have other avenues that can make up for the loss. Also, having more horses in the race can make you feel more secure and not take decisions out of fear.

Consult a financial expert

Lastly, when it comes to wealth, don’t feel hesitant to take an expert’s opinion! A financial advisor can help you make logical investments and sound decisions related to your money. So, consult an expert and download apps like Moneyfy to make your job easier.

Additional Read - Behavioural biases in investing that you should be wary of

To sum up

As humans, we are bound to think emotionally, but keeping emotions at bay is the key when it comes to investment. Taking a disciplined and logical approach and not giving in to fear or greed will help you achieve maximum success in the market.

Further, you can download the Moneyfy app by Tata Capital and compare different funds according to your investment goals, time horizon and risk profile.

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