Can a mood ring tell you when it’s a good time to invest?
It’s tough to avoid getting moody about lousy financial markets. And it’s easy for your mood to influence how you feel about investments. In fact, your mood influences the way you view investing in good times and bad. But is the color of your mood ring a good indicator to use in building your investment strategy?
A mood ring changes color in response to changes in body temperature. Different colors signal different emotions. For example, if the ring is red you’re probably feeling excited and energized. But if it’s black, you’re probably stressed or nervous. Wouldn’t it be great if we could just grab our mood ring and figure out whether now is the time to buy or sell?
As great as that sounds, the problem is most humans are emotionally wired to do the wrong thing at the wrong time. We feel the worst about investment prospects when investments are on sale (when the stock market is down). We feel good about investing when prices are high (when the stock market is up). But buying high and selling low does not add up to wealth building.
That’s why we encourage investors to determine what kind of investor you are when your mood ring is green (calm and comfortable). Then consider your time horizon and figure out how to divide your investments across stocks and bonds to achieve the level of risk appropriate for your situation.
Then put the mood ring back in the jewelry box. Markets will go up and down and sometimes they even go sideways. When times are tough and the mood ring is grey (uneasy, anxious), avoid the temptation to give up and run for cover. And when times are good and the mood ring is violet (super excited, extremely happy), don’t expect it will always feel this good.
As Warren Buffet once said, “someone is sitting in shade today because someone planted a tree a long time ago.” Rest assured, though, that wouldn’t be possible if someone dug it up and planted another every time the leaves withered while waiting for the rain to come and the sun to shine again.
These are hard things but you’re never alone with Align. If you want to talk, just reach out.