Avoiding Emotional Investing Mistakes in 2025

The stock market can be quite overwhelming, particularly during volatile times. However, even during prosperous moments, investors can feel stressed since no one can predict exactly when the next market downturn might occur.

The S&P 500 (^GSPC) has experienced impressive growth, soaring approximately 24% over the last year. Yet, a December 2024 survey conducted by the American Association of Individual Investors revealed that more than one-third of investors are feeling skeptical about the market's near future. If you find yourself anxious about what is next, know that you are certainly not alone.

Nevertheless, one of the most detrimental mistakes in investing you could make as we move into 2025 is to allow your emotions to guide your investment decisions. Here’s why maintaining a level head is crucial.

Checking Your Emotions

The last year has been favorable for stock market investors, but many are uncertain about what the upcoming year may hold.

Historically, average bull markets since 1929 have lasted around three years, according to data from Bespoke Investment Group. With the current bull market entering its third year, the uncertainty about a possible downturn can create anxiety for many investors. Additionally, the impending change of presidential terms adds to the overall uncertainty of 2025.

However, making rash moves based on fear could prove costly. The market's future is unpredictable; it may continue to rise. If you withdraw your investments now to shield yourself from a potential decline, you might miss significant growth if the market doesn't decline as expected.

Consider what happened in March 2020 when many investors hesitated to invest during the uncertain stages of the COVID-19 pandemic. At that time, numerous financial experts warned that the market could experience a prolonged slump. It would have been reasonable to consider avoiding the market in an effort to safeguard investments.

Yet, the downturn was short-lived. Surprisingly, stocks posted some of their highest returns in the following years. By the end of 2020, the S&P 500 had surged over 27%.

Staying invested through that challenging time was certainly a test of nerves, but if investors had set aside their fears and continued investing, they would have reaped considerable rewards later on.

Managing Market Anxiety

It can be exceedingly challenging to make investment decisions without letting emotions take control, especially when significant sums are involved. A practical way to ease those nerves is to focus on investing in quality long-term stocks.

Strong stocks typically come from companies with solid fundamentals, such as a competitive edge in their industry and leadership that has successfully navigated previous market uncertainties.

While these stocks may see fluctuations in the short term—especially during times of market volatility—they are more likely to withstand severe market downturns, ultimately leading to positive returns over time. By ensuring that your portfolio consists of resilient companies, you can feel more secure, knowing that your investments are likely to endure challenges.

A Reliable Investment Alternative

If you're uncertain where to start or prefer a safer option, consider investing in an S&P 500 ETF, such as the Vanguard S&P 500 ETF or the SPDR S&P 500 ETF Trust.

These investments include stocks from 500 of the largest U.S. companies. Many of these firms have been industry leaders for decades. While the stock market never guarantees safety, companies in the S&P 500 are some of the strongest contenders for surviving through market volatility.

Regardless of your chosen investment path, ensure that all companies within your portfolio are fundamentally sound. Above all, be prepared to invest for the long term, riding out any market fluctuations that may arise. By following these steps now, you'll be better equipped for whatever challenges 2025 and the future may bring.

investing, emotions, market