My fiancé, a massive tennis fan, has developed a ridiculous habit: he always bets against his favorite player.
It’s an emotional hedge. If his favorite player wins, he’s happy, and if his favorite player loses, well, at least he gets paid. It’s come up a lot this past week as he watched the French Open and I sat beside him snickering and lightly suggesting he bet a dollar or two instead of 20 or more.
It’s funny, the way we tie emotions and money together. As much as I rolled my eyes at him this week, we’ve all been there in some form, haven’t we?
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Maybe you have an emotional attachment to a stock because it was the first time you took the effort to model a valuation and you want to see if you’re proven right, even though it’s been tanking. Maybe you saw the market hitting highs in 2021 and made some riskier decisions driven by FOMO and outsized optimism. Maybe you sold a position in a successful company because they laid your friend off. Maybe you carry a superstition to never trade on Tuesdays — who knows.
“In theory, investment decisions should be calm, rational, and supported by careful research. But that’s just not how human nature works,” David Rodeck wrote for Kiplinger.
This week, I was thinking about when I started betting on sports (hey, at least it’s not crypto) and kept betting on my favorite players and losing. At a certain point, I told my fiancé, “I have to stop thinking about betting as voting for who I like better.” That was his turn to laugh at me.
It’s a similar game in investing. Although you could argue investing is a form of voting for who you like, you shouldn’t make investments just because you really, really care for a certain company. More often than not, it should be because it’s a good idea, not because it’s a good feeling.
If you want the good returns the market promises, you need to take the emotions out of it. Yes, that can mean avoiding investing in individual stocks, like senior investing writer Dan Burrows, which might feel boring. “But in investing, boring is the way to go,” David Fox, a senior portfolio consultant at Wealth Enhancement Group, told Coryanne Hicks about index funds.
So if you notice yourself hesitant to make an obvious investment decision, examine that feeling. Is it driven by an emotional attachment? Perhaps, instead of holding onto an flailing stock because your mom recommended you buy it 15 years ago, you call your mom and thank her for teaching you how to invest.
And as for my fiancé and his emotional hedges? His favorite player is Novak Djokovic. He lost a lot of money this week.
Thanks,
Alexandra
What I learned this week:Contributing editor Ellen Kennedy explained the power of shareholder proposalsDid you know athletes have a particular tax equation based on where they play? Senior tax editor Kelley Taylor explained the jock taxSenior investing writer Dan Burrows weighed in on if we’re in a bull marketMore six-figure earners are living paycheck to paycheck, personal finance writer Erin Bendig wrote, while lower earners are adapting better to inflationContributor Tony Drake shared how a couple should handle their finances