By Morné de Beer – Director/Financial Planner
Updated 23 July 2025
Discover how to manage emotional investing during market volatility. Learn strategies to stay calm, stick to your plan, and avoid costly mistakes driven by fear or greed.
What Is Emotional Investing?
Emotional investing happens when decisions are driven by feelings instead of facts. Instead of following a long-term strategy, investors react to short-term market movements with fear, greed, or hope—often at the worst possible times. This can lead to buying at market highs and selling during panic, which hurts long-term performance.
📉 The Emotional Rollercoaster of Market Volatility
Markets move in cycles—and so do investor emotions. Here’s the typical cycle most investors experience:
- Optimism: The market rises, investors feel hopeful and start buying.
- Excitement & Thrill: Gains accelerate, confidence grows, and people start bragging about returns.
- Euphoria: Peak emotion. Risk is ignored. This is usually the market top.
- Anxiety & Denial: Prices wobble, but investors convince themselves it’s temporary.
- Fear & Desperation: Panic sets in as losses grow. Many start selling.
- Capitulation & Depression: The bottom. Investors give up, saying “I’ll never invest again.”
- Hope & Relief: The market stabilizes. Confidence slowly returns.
- Optimism (again): The cycle repeats.
👉 Notice how emotions peak at the worst times: euphoria at the top and despondency at the bottom. Acting on these feelings often results in poor investment decisions.
As Charlie Munger wisely put it:
“A lot of people with high IQs are terrible investors because they have terrible temperaments. You need to keep raw irrational emotion under control.”
How to Manage Emotions in Volatile Markets
Keeping emotions out of investment decisions is one of the toughest—but most critical—skills for long-term success. Here are proven strategies to help you stay calm when markets get turbulent:
1. Recognize That Volatility Is Normal
Market ups and downs are not flaws—they’re natural features of financial markets. Accepting this helps you avoid overreacting to short-term swings.
2. Understand Your Emotional Triggers
Fear, greed, and regret are powerful forces. Behavioral finance experts note that our “emotional brain” often overrides rational thinking during market stress. Awareness of this helps you pause before acting.
3. Stick to a Written Investment Plan
A plan with clear goals, risk tolerance, and asset allocation acts like a GPS in rough markets. It keeps you focused on long-term objectives instead of daily noise.
4. Delay Your Reactions
When markets drop suddenly, don’t rush to sell. Give yourself time between impulse and action. Remember: it’s what you do before a plunge—not during—that counts most.
5. Avoid Market Timing
Trying to guess the perfect time to buy or sell is nearly impossible. Studies show that missing just a few key rebound days can drastically reduce your returns. Staying invested is often the smarter strategy.
6. Lean on Professional Advice
A trusted financial advisor can provide objective guidance when emotions cloud judgment. They help you zoom out and stay focused on the bigger picture.
Final Thoughts: Trust Your Plan, Not Your Panic
Volatility is like turbulence on a flight—it feels uncomfortable, but rarely catastrophic if you stay buckled in. The key is to trust your plan, not your emotions.
