By Mitchell Pratt
We’ve all had positive and negative events occur within our lives, it’s those sorts of events that can shake things up for the better, or sometimes worse. When they occur it can alter your outlook instantaneously, right? But how do you feel one, two or three years on?
In a study by Brickman, Coates and Janoff-Bulman (downloadable here), they studied just that. They compared 22 Lottery Winners, 22 unaffected people and 29 paralyzed accident victims. To keep it short; at the point of these life changing events, the lottery winner’s happiness levels increased and the accident victims plummeted. Wind forward a few years, the same people were revisited and how do you think they felt? Well, they reverted to similar levels of happiness prior to their life changing events. That’s called Hedonic Adaptation.
The same principle can be applied to making rash investment choices. For instance, say markets fall by 10% and its doom and gloom; naturally we feel pessimistic but given nothing else changes, in three months time we will move on with life. The key is to stay focused on your long term plan and if at any point you feel the need to make a change, speak to a professional before you do anything. Decisions based purely on emotion leads to big mistakes.
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