As an investor, you're constantly told to beware of your emotions. Economists toss around the concept of the rational investor who never succumbs to fear or greed, always makes the smart decision, and takes advantage of those who give in to their own human frailties. Through hard work, discipline, and self-control, this reasonable person will find financial success where others fail.
Rational investing makes a lot of sense. In practice, however, it's tough to ignore your emotions. If you lie awake at night worrying about a decision you've made or plan to make in the near future, then all the rational thought in the world won't make it easier for you to sleep. Do you obsess over every trade you make? If you hope to eke out that one last penny of profit and agonize when your real-time quote system reports that you missed out on the day's high, then it's tough to find inner peace just by reading an economics textbook.
A great day for a crash
You may not be able to act like an android in all of your financial decisions, but even when emotions become involved, some actions still make more sense than others. For instance, wouldn't today make a great day for a market crash? It's Friday the 13th, the day that triskaidekaphobes everywhere loathe. It's also October, the same month in which both of the biggest stock market crashes occurred -- in 1929 and 1987. The market has been doing great for the past few years, and the Dow's at new highs, so maybe it's time for the big drop again. You'd better wait until next week before you make that big investment.
Perhaps your superstitions extend beyond overall market prospects. Were you thinking about investing in real-estate investment trust Annaly Mortgage
Rational fear?
On the other hand, you may feel perfectly justified in some of your fears. For instance, with some signs pointing to a slowdown in the residential-housing market, what will you do if the value of your home falls and you have to move? With the rise in interest rates over the past two years, how will you pay your adjustable-rate mortgage when those higher payments kick in? How will you ever save enough money to pay off your credit card debt, build up a cash reserve fund for emergencies, and get your kids to college, yet still have enough left over to retire at a reasonable age? Even if you are able to save some money, how will you work your way through the thousands of different investment options out there and find the right one to help you reach your goals?
For many people, these are tough questions without obvious answers. The fact remains, though, that you still have to find those answers at some point.
But even on Friday the 13th, you may have stumbled across a little bit of luck, because The Motley Fool has the resources you need to overcome your fear.
Use your fear
In itself, being scared isn't a bad thing. What makes fear bad is when it paralyzes you into doing nothing. Yet doing nothing is probably the worst decision you can make in dealing with your finances, especially when doing nothing means continuing to rack up exorbitant finance charges on your credit cards, giving up free matching funds from your employer's 401(k) retirement plan, or putting off long-term saving for another month. For most people, doing nothing won't make things better and will often make a bad situation worse.
When you've had enough of being afraid, use that fear to motivate you to find solutions to your troubles. Taking a look at Motley Fool GreenLight could help you sleep better at night. In its pages, Dayana Yochim and Shannon Zimmerman use their expertise in personal finance to give you concrete things that you can do to take control of your financial life.
Take the second step
By visiting The Motley Fool and reading this article, you've taken the first step toward realizing the full potential of your financial future. With the hard part already out of the way, the next thing to do is to use the full range of information that the Fool provides each and every day. We make it easy to take that second step by offering free trial periods on many products and guarantees of satisfaction on all of them.
Using your fear to motivate you is one of the most rational things you can do. Just in case you're still feeling a little skittish, we'll make sure to keep the office black cat out of your path.
Related articles:
Fool contributor Dan Caplinger isn't afraid of Friday the 13th, but he does turn off the TV whenever his favorite teams are in the playoffs. He doesn't own shares of any companies mentioned in this article. The Fool's disclosure policy leaves you with nothing to fear.
