Why Emotions Are the Biggest Threat to Investment Returns

Most investors believe market volatility is the biggest risk to their returns.
In reality, the bigger threat is far closer to home: human emotion.

Fear, greed, overconfidence, and regret quietly influence decisions — often at exactly the wrong time.

Markets don’t cause poor outcomes.
Emotional reactions to markets do.

How Emotions Hurt Investment Returns
Investors tend to:
• Panic and sell after markets fall
• Chase performance after markets rise
• Avoid investing when uncertainty feels high
• Constantly change strategy based on headlines

Each of these behaviours feels logical in the moment — but consistently works against long-term success.

Why This Happens
Humans are wired for short-term survival, not long-term investing.
Losses feel more painful than gains feel rewarding.
This leads to defensive decisions that prioritise comfort over outcomes.

Successful investing often requires doing the opposite of what feels natural.

The Cost of Emotional Decisions
Missing just a handful of strong recovery days can dramatically reduce long-term returns.
Investors who jump in and out of markets often underperform the very investments they hold.

Staying invested matters more than getting it “perfect.”

How to Manage Emotional Risk
• Have a clear long-term plan
• Match investments to realistic risk tolerance
• Limit portfolio checking during volatile periods
• Focus on goals, not daily market noise

Final Thought
Markets reward patience, not prediction.
The investors who succeed aren’t emotionless — they simply don’t let emotions make the decisions.

Legaseed NZ Ltd (FSP1005404) holds a licence issued by the Financial Markets Authority and provides financial advice in relation to financial & retirement planning, investments, KiwiSaver and personal risk insurance. Our disclosure information can be found on our website www.legaseed.co.nz, or is available on request and free of charge.