Investment Tax Series: Part II Emotional Taxes on Investing How Feelings Can Cost You Real Money
When most people think of the taxes associated with investing, their mind immediately jumps to April 15th and capital gains taxes. While government taxes are certainly a real cost, they’re just the beginning. In reality, investing comes with a variety of "hidden taxes". For example: mental, emotional, social … And these can have just as much impact on your wealth and your experience.
At McFee Financial Group, we believe understanding these unseen costs is key to long-term success. In this series, we’ll break down each type of investment tax, how they affect you, and how we work to minimize their burden.
Second in the Series: the emotional tax - the one you feel the most.
“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” — Benjamin Graham
Your emotions are powerful. In investing, they can be very expensive.
Most investors feel losses twice as intensely as they enjoy gains. This leads to panic selling in downturns and overconfidence in booms, behaviors that destroy long-term results.
At McFee Financial Group, our team provides the rational, disciplined guidance you need to avoid costly emotional mistakes.
😖Common Emotional Pitfalls:
📉 The Emotional Cost of Great Investments
Even the best investment strategies can be undone by poor investor behavior.
Take the example of Peter Lynch, the famed investor who achieved an extraordinary average annual return of 29% from 1977 to 1990. His success attracted waves of investors eager to benefit from his stock-picking expertise.
And yet, despite his remarkable performance, the average investor still lost money.
That’s the shocking insight from a Fidelity internal study, which revealed that investor behavior, not investment selection, was the culprit.¹ Most investors bought into the fund after big performance years, and sold during downturns, locking in losses instead of riding out the long-term gains.
This is a textbook example of “behavior gap” — the difference between investment returns and the returns investors actually receive because of emotional decision-making.²
📊Official Mistake Graph
This is an accurate and official graph of what people actually do during business cycles because of emotional trading. Yes, investors should be doing the exact opposite!
🎯Top 3 Takeaways:
• Emotional mistakes are one of the biggest threats to your returns.
• Discipline beats reaction, especially during market volatility.
• Your wealth team helps protect you from your worst investing instincts.
Ready to keep more of what you earn? Connect with McFee Financial Group for a personalized investment tax strategy.
References:
- Dalbar, Inc. Quantitative Analysis of Investor Behavior (QAIB), ongoing annual study.
- Morningstar and Vanguard studies also show investors underperform the very funds they invest in due to timing mistakes.