The True Enemy of Every Investor .

Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior.

 

Unfortunately, the true enemy of every investor lies within.

 

The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to. This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt.

 

In recent conversations with investors these tendencies to gamble and speculate are becoming evident. It sounds something like ‘if this asset class is doing well and this one is not why not transfer all of our money into the better performing asset class?’ This is a classic case of market timing. Getting into and out of the market/asset class at the right time.

 

We are emotional beings and when our friends/relatives tell us how they are making ‘tons’ of money investing a certain way. We become envious and wonder why we can’t get a ‘piece of the action’?

 

Just because the ‘hot’ asset class is doing well does not mean this trend will continue. It may for a while but eventually the ‘hot’ trend will end. Leaving the investor with a sick feeling and even more skeptical of the markets.

 

The markets are not the problem you are. This is where an investor coach/fiduciary adviser can help. Your fiduciary adviser will help you build a prudent, globally diversified portfolio with the right amount of equities and fixed income for you. Most importantly your coach will keep you disciplined when your emotions tell you to invest the ‘hot’ way.

 

To succeed in investing for the long term you must

 

  • Own equities and high quality short term fixed income.
  • Globally diversify
  • Rebalance.

What is Your Investment Philosophy?

Free Markets Work….

It is so important for you, as an investor, to know what your investment philosophy is.

Market Street
Market Street (Photo credit: glennharper)

The Wall Street bullies want you to believe that the “markets fail” and that someone can tell you the best investments to invest in at all times. They will tell you they know when to get in and out of the market. These bullies want you to listen to their forecasts and move your money accordingly.

What the Wall Street bullies won’t tell you is they have no idea where the market is going or which asset classes will outperform.

Your beliefs have been formed by the financial media hype.  They lead you to believe there is someone who can predict the future.  No one can.

There are two camps to investment philosophy, “markets work” and “markets fail”…

On the “markets work” side, make sure to follow these action steps. If you are in this camp, you will need to:

  • Eliminate speculative investment techniques.
  • Work with a financial professional who believes that markets work.
  • Ignore media hype.
  • Set lifelong financial goals.
  • Focus on capturing market returns.
  • Utilize asset class or structured funds.
  • Prudently diversify.
  • Identify your risk tolerance.

On the “markets fail” side, consider the following.  If you believe that markets fail, then you are morally obligated to:

  • Pursue speculative techniques.
  • Work with the bullies who actively gamble with your money.
  • Stay connected to the internet, magazines, talk shows, news shows, internet shows, and download apps to your cell phone so you can track up-and-down markets.
  • Read every article about stocks and options that you can find, wonder and worry about the market, what might happen next—whatever you do, don’t miss the next hot stock tip.

It is up to you to determine how you want your money invested. Personally I believe “markets work”. I believe your time would be much better spent improving your job skills or learning a new job skill or spending time with family and friends than trying to beat the market.

Remember, there will always be someone who picks the hot stock and gets rich or gets out of the market at the right time, the problem for the investor is that this is luck rather than skill. Meaning this feat is unlikely to repeat.

To succeed long term, you should
own equities…globally diversify…..rebalance

Please comment or call to discuss what your investment philosophy is.

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Emotions Override Statistics

English: Wall Street sign on Wall Street
English: Wall Street sign on Wall Street (Photo credit: Wikipedia)

When you read a daily financial publication like the Wall Street Journal you find an enormous amount of facts. These facts can lead to vastly different conclusions. I wager that each day, with the exception of 2008-9, I can find 5 reasons the market will go up and 5 reasons it will go down. All of these facts occur in the same day.

You can justify almost any imprudent investment decision with “facts.”  Information is filtered by our emotions to create “fact” that support our decisions or beliefs. Without outside guidance, it is impossible to tell when and how this happens. Truth is the field of investing is elusive.

Remember the Wall Street bullies make money when we, the public, move money from one investment to another. Your broker has a vested interest in moving your money. They make more commission each time you move. The banking system loves to feed the fear.

If you are really interested in earning a good return on your investment dollars stop empowering the Wall Street bullies. Develop a sound, prudent portfolio, based on YOUR risk tolerance level and remain disciplined to that strategy. Jumping from one investment to another will cost you money and make tons of money for Wall Street.

As I have mentioned a number of times, NO ONE can predict the future. When you ask your broker what is the best stock for now? Or, when should I get in and out of the market? Or, who is the best fund manager(s)?  You are essentially asking them to predict the future.

A globally diversified portfolio eliminates the need to predict and allows you to relax and be assured you are properly invested to reach your long term goals. One of the main attributes investors need as well as advisers is discipline.

Equities are one of the greatest wealth creation tools available, if properly used. To reach you long term financial goals own equities…..globally diversify….rebalance.

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