When investing many people hear their friends or colleagues talking about their investing successes. In many cases this involves investing in high risk ‘penny’ stocks or startups. Or just the ‘hot’ asset class of the day.
The lure of the high return is compelling to most of us. Some may even have early successes.
We must remember that this is speculating and gambling with your money. When these investments do work out it is the result of luck and not skill.
Over the long term, using this strategy, the investor will be lucky to match the returns of the overall market.
Psychologists Kahneman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to make $80,000, when others were making $90,000.
There will always be “others” with more assets, money, or larger portfolios. We are doomed to disappointment because comparison destroys the joy of having and using what we already have.
Most people would agree to make or have less as long as others were even poorer. Resist the impulse to compare yourself to your “neighbors”.
This includes comparing your portfolio or 401(k) account balance to your colleagues. In some instances you may be better in others worse. The goal of your investments is to attain your long term goal. This would include a strategy and savings discipline.
Developing a prudent strategy and remaining disciplined to it are very difficult, however in the long term will lead to success. No one can predict what asset class or sector will outperform in the future.
Warren Buffet has one strategy which he remains disciplined to. This is the primary reason for his success.
You are speculating if you stock pick, market time or base your investing decisions on track record performance. Keep in mind speculating is ok, but not with your retirement funds or any funds needed for a long term goal..
To succeed in investing you should
own equities…globally diversify….rebalance.
While it sounds easy these three tasks have proven very difficult for investors to follow. Especially during market extremes.
Because we are emotional beings we need someone to keep us disciplined. To resist panicking during severe downturns. As well as resist joining in on a ‘huge’ upswing in a specific asset class.
Find an investor coach/fiduciary advisor and learn how to invest with more confidence. Your coach will help you ignore the short term volatility and focus on your long term goals.