- Bad Behavior #1- Putting off, or procrastination if you want to get all fancy. Yes, we all do it, but this is the number one reason we don't meet our financial goals. The sooner we get started, the easier it is to accumulate the funds we need. But you don't need me to tell you this, you already know that. But in case you didn't already know this, see my August 1 blog, "Start early, stay the course!" Do it now! No putting off!
- Bad Behavior #2- Poor planning. Even when we decide to finally start a savings and investment program, we may sabotage our good intentions if we fail to come up with a written plan of execution. Why is this so important? Well, we humans have a bad habit of straying from the path. But when you write down a goal, complete with specific steps with deadlines for completion of the steps, then the goal passes from being a daydream to an actual plan. That's right, a goal without guidelines and deadlines is just a daydream.
- Bad Behavior #3- Pessimism. O.K., I admit it, there are a lot of reasons to be pessimistic. About the economy, the budget deficit, the state of politics in Washington. Heck, there are good reasons to be pessimistic about life in general. But don't give in to the feeling. Pessimism can become so ingrained into our thoughts that it becomes a bad habit that will blind us to all the reasons to be optimistic. And there are many more reasons to be optimistic than pessimistic when it comes to achieving your financial goals. For all its faults, we still live in the greatest country in the history of mankind, with the most innovative and robust economy in the whole world. We can achieve our financial goals by investing our hard-earned money in the greatest companies in the world, good ole USA companies who still pay stock dividends and whose stock share prices will appreciate in value as good times return, as they most assuredly will. Bank on it!
- Bad Behavior #4- Panicking. If we know anything about the stock market, we know it will go down. This tendency for stock prices in general to go down in certain economic times is known as systematic risk. It is why stock investing is risky. There will be times when the economic outlook will be not so rosy. Investors become fearful and so many of them will sell their stock shares, even at a loss. But now is not the time to panic. If we have a well diversified portfolio with the right proportion of stocks and bonds according to our level of risk tolerance, then we should not sell simply out of fear. If fact, this is the very time that many savvy investors will buy. We should always strive to buy low and sell high. But when we get panicky, we will do just the opposite. We will sell at a lower price than it cost to get into the stock and that is a guaranteed loss.
- Bad Behavior #5- Pain avoidance. Hey, wait a minute. Everybody wants to avoid pain. What could possibly be wrong with pain avoidance? Well, here I am talking about the kind of pain that's good for you. As in weight lifting, for example. You know the old saying, "no pain, no gain". When it comes to saving for our financial goals, most of us are going to have to give up some things in order to be able to set aside the money to fund those goals. In other words, we are going to have to make some sacrifices. This doesn't mean we'll have to live like a monk, but for most of us the sacrifice would probably be good for us. Instead of keeping up with the Joneses, we will be living within our means and we'll be keeping up our investment account balances. To paraphrase a popular running T-shirt message, "Save hard, live easy".
- Bad Behavior #6- Performance chasing. Once we have established a written investment plan, we should stick to that plan. If we have a properly diversified portfolio, we should be in good shape to capture the stock market gains necessary to fund our goals. So let's be disciplined. For example, let's say we are invested in a large cap stock mutual fund where the manager has been successful the past several years in beating the S&P 500 index. Now let's say he has two years in a row of bad returns that don't beat the index. Let's not sell out of the fund to invest in another fund that has had a better year just because of the short term sub-par performance of our fund . If our current fund's manager is still operating the fund according to the guidelines in the prospectus, it should still be a solid fund based on its past performance. Getting in and out of funds trying to capture the returns of last year's best performing fund is what's known as performance chasing. It is a behavior guaranteed to lose money, so let's not do it.
- Bad Behavior #7- Pridefulness. O.K., I going to use this word even though spell check doesn't like it. After all, I had to have my final "P" word. So what do I mean by "pridefulness". We all know that there is nothing wrong with taking pride in our accomplishments. We are rightfully proud of ourselves if we, for example, have lost weight, or learned a new skill, or have been recognized by recieving an award, and so on. But the pridefulness I am talking about is a false pride and so we don't always recognize it in ourselves. When it comes to investing for our financial goals, we can attribute too much of any success we have had to our own skills when the success may have just been good luck on our part. This may give us a good case of over confidence that leads us to take unnecessary chances in our portfolio. So, my point is, don't be too prideful to get a second opinion from someone you trust. Don't be afraid to consult someone when you are beginning an investment plan. It may make the difference between getting off to a good start and getting off on the wrong foot.
Signing off,
Randy
randy@mooreadviser.com
No comments:
Post a Comment