Are emotions hijacking your investments?

Investment markets move up and down, often without much warning.

Most investors know this going in. And yet, when it happens, the emotional pull to do something can be surprisingly strong.

The first half of 2026 has been a good reminder of that. Geopolitical tensions in the Middle East triggered sharp market falls(1), and for a while, headlines brought a fresh reason to worry.

Since then, markets have recovered(2). But investors who acted on that early anxiety, by selling or switching funds, may have missed part or all of that rebound.

The bottom line? Sometimes the risk is not market volatility itself. It’s our reaction to it.

Why investing gets personal

Returns, forecasts, performance charts – investing may look like a numbers game. But what you’re investing for is a lot closer to your heart. It might be your retirement, a first home, your kids’ future.

That makes investing personal, which can bring out emotional responses. When markets rise, it’s easy to feel confident. When they fall, uncertainty creeps in fast.

The challenge is that emotions pull our attention towards what’s happening right now, when the goals we’re working towards are measured in years. Sometimes, decades.

The two emotions that do the most damage

Most emotional investment decisions trace back to fear or greed.

Fear shows up during downturns. As values fall, it can be tempting to sell or shift to something that feels safer. We saw this clearly during the Covid-19 market crash in early 2020, when many KiwiSaver members moved to lower-risk funds – regardless of how many years they had left to invest. But markets recovered much faster than expected, and those who switched likely locked in losses they didn’t need to take.⁽³⁾

Greed works the other way. When markets are trending upward, you may feel like chasing the latest hot trend (often when it’s already too late) or take on more risk than you’re comfortable with.

Both reactions are human responses. Both can work against long-term investment goals.

Time in the market vs timing the market

No investor, no matter how well-informed, can predict when markets will move, how far and how fast they’ll recover. There are way too many variables in play. And the cost of getting it wrong can be significant: selling before a recovery, then buying back in once prices have already increased.

As the old investing principle goes, it’s time in the market, not timing the market, that tends to drive long-term outcomes. Markets move in cycles, and history shows they have recovered from previous downturns over time, although future recoveries are never guaranteed.

Staying invested can give long-term investors the opportunity to participate in any future market recovery, should one occur.

Take headlines with a pinch of salt

Staying informed is important. But it can be hard to separate useful information from noise, because financial news is designed to grab attention. It focuses on short-term drama and speculation about what might happen next. Meanwhile, markets often react quickly to new information.

Your investment goals, on the other hand, are probably measured in years or decades.

A good rule of thumb: if nothing has changed about your goals or circumstances, a headline alone is rarely a reason to change course. Even when major events are often quickly reflected in market prices, short-term volatility doesn’t always affect long-term investment outcomes.

Having a plan makes all the difference

One of the most effective ways to reduce emotional decision-making is having a clear investment strategy, and sticking to it.

That means being clear on:

What you’re investing for (your goals)
How long you have to invest (your investment horizon)
How much volatility you can tolerate (your risk appetite)
How your investments fit within your broader financial picture.

When markets become unsettled, a solid plan can act as an anchor. The question shifts from “What is the market doing today?” to “Has anything changed about my goals?”

More often than not, the answer is no.

Staying the course vs standing still

Keeping emotions in check doesn’t mean setting and forgetting. In fact, we recommend reviewing your strategy regularly.

Your circumstances may change over time. You might be approaching retirement, planning a big purchase, or reassessing what you want your money to do. It’s important that your investment portfolio keeps pace with those shifts.

The key thing is what’s driving your investment decisions. Adjusting because your life has changed is the kind of intentional move a good investment strategy is built around. Adjusting because the market had a bad week usually is not.

Practical ways to keep emotions in check

We’re human and emotions are part of who we are, so it’s difficult to completely remove emotion from investing. A common approach to help manage this could be to: