7 useful ways you can keep yourself cool and calm when making investment decisions

Cast your mind back to the summer of 2022 and the record UK temperatures, and you’ll likely remember just how hard it was for you to concentrate and focus on whatever you were doing in that heat.

While you may have enjoyed the air conditioning in your workplace, you would have noticed the difference when you headed home. In fact, you may have been aware just how much your ability to focus or perceive information changed once you were away from the refreshing cool temperatures and out in the stifling heat.

Whether it was getting more frustrated with other drivers on the journey home from work or finding it hard to decide what you would have for dinner that evening, you may have noticed just how different your attitude was.

Indeed, research by Psychology Today revealed that perception, cognitive ability and function are affected by exposure to heat.

With July being the world’s hottest month on record and average temperatures in the summer looking likely to rise in the years to come, understanding how to prevent the temperature from influencing your financial decision-making could be vital.

So, read on to discover seven useful ways you can keep yourself calm and cool when making financial decisions.

1. Don’t make snap decisions

People often tend to act more irrationally when they are hot and bothered. So, think twice about making snap financial decisions, whether that’s making an impulse purchase or cashing in some of your portfolio.

Indeed, according to FTAdviser, financial advisers believe that emotional decision-making made by clients costs those investors at least 2% each year in foregone returns.

When investing, it’s important not to make knee-jerk decisions based on frustrations with recent performance. In fact, decisions based on emotion or made in an instant can often lead to investment mistakes, with 63% of advisers stating they were “regularly” or “frequently” surprised by the proposals or decisions their clients make about investments.

Working closely with a financial planner could decrease the chances of you making emotional decisions that might hinder your progress towards your long-term goals.

2. Sometimes doing nothing is better than doing anything

Closely linked to avoiding snap decisions is the even calmer strategy of “doing nothing at all”. When it’s hot, we all know how difficult it can be to do even the simplest task and it’s no different with financial decision-making in the middle of a hot summer.

Often, doing nothing is especially worthwhile when markets are volatile and news headlines are making things sound even worse than they may be.

Your portfolio has likely been designed with your long-term goals in mind and will have considered the possibility of investment uncertainty. Sticking to the plan can help you to make progress towards your aims. That brings us to…

3. Stay focused on your goals

Whenever making any financial decisions, it’s important to remember what your goals are and what you have planned for the future. Your goals might include:

• Paying off your mortgage
• Retiring on your terms
• Maintaining a comfortable lifestyle in later life
• Ticking off “bucket list” items
• Helping your children
• Starting your own business.

When it’s hot, it is harder to focus because the heat makes your body feel less alert and energetic. You can also lose some of your mental edge when you’re exposed to extreme heat.

So, if you can feel yourself getting hot and bothered when thinking about your finances, remember why you came up with your financial plan and the motivations behind it.

4. Take solace from history

Hot weather and poor returns can often be a worrying combination for investors, with the hotter temperatures more likely to encourage poor decision-making.

However, history has shown that markets often typically recover from downturns and go on to deliver returns over the long term.

So, if you’re getting frustrated by poor performance, don’t let the heat get to you. Take a look at market history, keep calm and be patient. Often, some of the best days in the market follow dips and, in the long term, markets tend towards growth.

5. Limit how frequently you check your investment portfolio

The theory of “loss aversion” suggests that investors experience the pain of losses twice as significantly as the pleasure of gains.

So, checking your portfolio on a daily basis – where movements can be volatile – could encourage you to unnecessarily worry about short-term dips in value.

You’re likely to be investing for the long term, so make sure you tune out the noise and only check your investment portfolio on occasion.

6. Remember that investing can offer potential growth

It can often be very tempting to make changes to your investment portfolio and perhaps revert to “safer” asset classes such as cash. This may be especially true when emotions are heightened by the hotter temperatures.

However, it’s important to remember that investment returns can offer the potential to beat the interest generated by cash savings.

While the UK inflation rate has decreased in the last couple of months, standing at 7.9% in June 2023, it still remains high. The high inflation rate means cash savings accounts are typically struggling to keep pace, resulting in savers seeing the value of their deposits lose value in “real” terms.

If you are willing to accept the risk that comes with investing, your money can have a greater chance of beating inflation over the long term if you keep it invested.

Remember that the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

7. Regularly discuss your options with a financial planner

Carrying out your own due diligence is important, but a great way to stay calm whenever making any financial decision is to speak with a financial planner.

Not only will they help you develop a financial plan that’s tailored around your financial circumstances, but they’ll also act as a sounding board for your decisions. As a result, you’ll remain calm and composed during the hot summer months and make the best possible financial decisions for you and your loved ones.

Get in touch

If you want to ensure that you’re making the right decisions with your wealth – whatever the weather! – speak to us. Please email info@harperlees.co.uk or call 01277 350560.

Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.