At the start of 2014, predictions of a market correction were rampant. So what has happened? The market has gone up on some days and down on others, and the volatility that was absent in 2013 has returned. This has led to even more talk about market corrections and projections about what lies ahead. But the problem is those predictions are based on feelings and emotions. An investment plan should be based on data and evidence, and it should take into account the inevitable fluctuations that the market experiences.
In fact, Carl Richards, director of investor education for the BAM ALLIANCE, writes in his book The Behavior Gap about the importance of staying level amid market ups and downs: “It makes far more sense to ignore what the crowd is doing and base your investment decisions on what you need to do to reach your goals. But man, is that hard to do.
“It’s not that we’re dumb. We’re wired to avoid pain and pursue pleasure and security. It feels right to sell when everyone around us is scared and buy when everyone feels great.
“It may feel right. But it’s not rational.”