Why most people should do much better
 They
let their emotions rule their actions. The best-laid plans
can be sabotaged when emotion gets in the way. Emotion is
one of the main reasons the average investor doesn’t
do better. Especially in today’s markets.
You can do everything right, and have a well thought out
strategic investment plan in place. But when the market turns
against you, as it surely will at some point, if you let your
emotions overpower your strategic thinking, you’re going
to make some bad decisions.
Many investors are their own worse enemies. They don’t
deal with this vital question up front: “How much risk
am I willing to tolerate?” They don’t think things
out beforehand. Then when they’re faced with a difficult
situation, they’re not able to stick to their plans.
And they wind up rethinking and remaking decisions under the
worst conditions.
They’ll watch the markets go down for a few weeks or
a few months or even longer. Then, after sticking to their
plan through the downturn, they finally lose patience and
sell. Occasionally it may turn out to be the right move but
usually it’s not. In most cases, all they do by selling
is lock in their losses. Then they make things even worse.
In typical overreaction after experiencing a loss, they seek
safety and put their money in GICs. Then they watch with frustration
as the market turns and moves on to higher than ever levels.
Not only have they taken an unnecessary loss but they miss
out on profits they should have had.
This is a common scenario for many investors. They miss huge
potential gains because they make decisions based on emotion
and fear rather than on logic and discipline.
You have to have a long-term written plan –
and stick to it!
Without an investment plan, you’re going to be reacting
to daily events, and that’s not an effective way to
invest. You need a long-term plan that will give you the confidence
to ride through the daily news and the inevitable volatility.
And your plan should be in writing. Putting your plan in
writing will increase your commitment to it. It will make
you feel that you are in control and taking concrete steps
toward achieving your goals.
Most important, you have to stick to your plan. And to be
able to do that, it’s vital that your plan be based
on how much risk you can handle. And that means your goals
must be compatible with your tolerance for risk.
If your goal is for high rapid growth and your risk tolerance
level is low, that’s not a compatible situation. And
since you’re not likely to change your emotional attitude
toward risk, you need to change your goal.
Important information about our financial planning services can be found at the bottom of our
homepage.
|
