Are your emotions getting the best of your investment returns?

“Never trust anyone over 30,” we were told in the turbulent 1960s. In the still turbulent 2020s, investors might tweak that suggestion to warn against trusting our emotions, regardless of age.

Research has shown that the fear of short-term losses is a strong impediment to long-term investment performance. It’s what behavioral economists call “myopic risk aversion.”[1]

Here’s how it works.

Despite seemingly random day-to-day fluctuations, stock prices generally anticipate by several months changes in the American economy as it slows, contracts, and recovers over a normal business cycle. From a physiological perspective, the human response to that cycle also follows a predictable pattern, one that resembles an emotional roller coaster.

During the later stages of a painful recession, the amygdala — the brain’s so-called fear center — sends out a powerful message to be wary of putting money back to work, despite more attractive prices and valuations.[2] Then, as economic conditions gradually improve, an almond-shaped area of the brain known as the nucleus accumbens reasserts control, helping investors to overcome fear and reluctance, and triggering a burst of optimism and exuberance.[3]

Ironically, that exuberance often coincides with the moment of peak risk. This is when the emotional roller coaster starts down, first manifesting itself as fear as stock prices correct, then as anxiety as the economy slows, and finally as despondency that motivates selling, or what’s termed capitulation. The emotional damage can be severe enough that investors remain apathetic about getting back on board even after market and economic conditions begin to improve.[4]


As human beings, we are hardwired to experience those emotions. In fact, it’s believed that we feel potential losses roughly twice as intensely as we feel the pleasure of potential gains.[5] And with good reason. In our hunter-gatherer days, “losses” (in the form of our lives) could be permanent, while gratification (food) could be safely deferred, if not necessarily preferred.

But applying those same Stone Age responses to a 21st-century investment portfolio can be counterproductive or even dangerous to your financial well-being. In part, that’s because losses within a balanced, diversified portfolio of financial assets are rarely permanent. Since 1945, the rolling five-year return on the large-cap S&P 500 has been positive 93% of the time. Over 10 years, the number increases to 97%, and over 20 years, to 100%.[6]


So back to our first question: If fear is a natural human response to perceived risk, what can investors do to keep their emotions from getting in the way of their longer-term financial goals?

First, we can remind ourselves that time is on our side. On average during the post-World War II era, U.S. stocks have dropped by at least 20% every seven years yet went on to post new highs within an average of three to five years.[7] Keeping a long-term perspective makes it easier to ignore what our stomach may be telling us.

Also, maintaining a diversified portfolio of financial assets — including such alternative investment categories as hedge funds, private equity, commodities, and real estate — could help mitigate volatility and thus provide greater peace of mind.

Finally, try to keep money that might be needed within that three- to five-year window in more stable assets, such as cash equivalents and short-term government bonds.

At the Burish Group, we understand the heavy emotional toll that a once-a-century pandemic has taken on the personal, professional, and financial lives of nearly all Americans. It’s natural to be feeling stressed, and yes, even fearful.

We’re here to help you plan for your future — and to lend a sympathetic ear.

Andrew Burish is a financial advisor with UBS Financial Services Inc., 8020 Excelsior Drive, Madison, WI. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc.

As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that you understand the ways in which we conduct business, and that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. For more information, please review client relationship summary provided at, or ask your UBS Financial Advisor for a copy. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. IS23016760; Expiration 3/31/2024

[1] “Fear is the path to…underperformance?” UBS Financial Services. May 4, 2022.



[4] “The emotions of the market cycle.” UBS Financial Services. January 30, 2023

[5] “Fear is the path to…underperformance?” UBS Financial Services. May 4, 2022.

[6] “Fear is the path to…underperformance?” UBS Financial Services. May 4, 2022.

[7] “The emotions of the market cycle.” UBS Financial Services. January 30, 2023