When is the best time to be prudent? Most investors respond, “It is always the right time to be prudent.” And they’re exactly right.
If imprudent risk-taking and speculation has cost you money, the worst thing that you could do is participate in imprudent, speculative, and risk-taking activities going into the future.
If you are using an adviser or you do it yourself these three activities you are speculating and imprudent.
- Stock picking
- Market timing
- Track record investing (picking fund managers based on past performance.)
We as investors have been taught these three activities are what investing is about. The financial media and the large brokerage firms and even insurance companies have convinced investors this is investing.
There are numerous studies proving that the above activities do not benefit the investor. But rather benefit the large brokerage firms, banks and insurance companies.
So why do people often insist on continuing with the imprudent behavior? Because to admit that there’s a better way, they, in effect, have to admit that they were originally wrong.
To admit that our own behavior or decisions were ill-founded in the past is threatening to the personal ego. This realization can be extremely painful to deal with.
For many people, it is easier to make a bad decision even worse by continuing the destructive process than to face it head on.
There is a better way. A prudent process that incorporates academic and scientific research. Some of which have won the Nobel Prize in economics.
The opportunity, here, is to realize that you are not your decisions, and just because you made an improper, or imprudent decision in the past, does not mean that you are less of a person, or less intelligent.
As a matter of fact, it’s a sign of intelligence and growth to solve and put an end to a destructive process when you become aware that it exists.
To succeed in investing you must own equities…..globally diversify……rebalance.