The recent market volatility along with the huge swings up and down, are nothing new in the markets. We've seen this play out time and time again. Back during the run-up to the 2008 financial crisis, I was working with a client—let's call him Dave. Dave was an incredibly smart guy, but he fell into the exact same trap that most of us make with our money: buying high out of pure greed, and selling low out of panic.

When certain sectors were flying high, Dave saw the market surging and felt the irresistible urge to pour his money in, desperately chasing that performance. Especially as he watched his friends and neighbors “get rich” in the markets. But when the sentiment suddenly shifted and the market started to crater, his mindset completely flipped as he scrambled to escape.

At the top of the market, Dave couldn't buy fast enough, but about three years later, at the absolute bottom, he couldn't sell fast enough. We saw this exact same story during the dot-com craze of the early 2000s, again in 2008, and even more recently with technology stocks. It's a vicious cycle that investors repeat over and over until they go broke. No wonder so many people are left unsatisfied with their investing experiences.

To put this behavior into perspective, imagine walking into a dealership to buy a new car. The salesperson looks at you and says, "You're in luck, we just marked up all the cars 30%!". Would you ever respond by saying, "Awesome, I'll take three!"?

Of course not! Yet, this is exactly how people behave with their investments.

Why do we do this? It's simple biology. We are hardwired to chase things that give us security and pleasure, and to run as fast as we can from things that cause us pain. This instinct kept us alive as a species back when we had to worry about being eaten by the financial equivalent of a saber-toothed tiger.

When you mix that survival instinct with a herd mentality—the feeling that if everyone else is buying, you must join in to be safe—you get a pretty potent, dangerous cocktail.

I want you to know this: feeling fear when the markets drop, or greed when they soar, is totally normal. It just means you are human. But you must understand that acting on those emotions will cause serious financial harm.

My advice? Do whatever you need to do to stop yourself from acting on that fear and greed. Build financial guardrails, have a solid plan in place, stay out of the kitchen when it gets too hot, or hire a financial professional to guide you. Just knowing about this cognitive trap is the first step to behaving better with your money.

~Alex