by Richard E. Reyes, CFP
Imagine an advisor coming to you with an investment plan which sounds something like this….when times are good, when stocks are higher in price, and you feel good…we are going to buy because we want to make sure you feel good. And, of course, when times are bad, when stocks are bad and they are going down and you feel fearful, we are going to sell and go to cash. Because it’s always more important that you feel good.
I am describing it sarcastically and it sounds ridiculous – Right? But that’s actually what people want to hear, what they have come to expect, and what most of the financial advisors and many in the financial industry preach that they can do.
Well I am sorry to tell you that investing in the markets (investing in general) is not about your feelings, emotions or gut.
We all know that investments and emotions don’t mix very well. The truth is that most investors actually hurt themselves by letting their feelings and emotions creep into their investment decisions. The results are staggering that investor emotions alone can fuel irrational investor habits and lead to costly mistakes.
Here are 2 things to remember;
First: Market timing, is very difficult and very ineffective. Finding the lowest and or highest point to buy and sell something is a pipedream. It is far more important to be prudently diversified in a broad low cost portfolio that invests in various investment sectors, companies, and countries. If you are retired and would like to stay retired its also important to put together a plan that uses multiple investments, divided into multiple time frames, and with income guarantees. This approach strategically combines shifting risk and investments to achieve Reliability of Income (ROI) and better be able to manage your emotions at retirement.
Second: Don’t buy tall stories. There are numerous strategies to make sure you don’t allow your own feelings to undermine your investment success but one of the most important is to maintain a healthy dose of skepticism – particularly when someone is selling you fear. With the current market gyrations, and a low interest rate environment the financial industry is not short with selling stuff that preys on your fears. So be careful.
Hopefully you can understand how a short-term decision can really negatively impact your long-term results. Being impulsive is obviously a no win game. But being apathetic will leave you unprepared in your later years due to lack of planning. You don’t find many investors who would claim either one of these extremes, most will tell you that the always fall in the middle. But it just takes one dip in the economy to test investors and I hope you don’t make an extreme decision based on a “feeling”!
If you are looking for a brief, plain-English introdution to investing, don’t forget to BUY my book, Dirty Filthy Lies My Broker Taught Me & 101 Truths to Money and Investing. Order my book now and I will also send you my Investor Awareness Guide and listen to our The Seven Deadly Investor Traps that Destroy Your Wealth and the Three Power Strategies to Fix Your Portfolio Fast! These materials will equip you with the information you need to begin putting your investment experience back on track.
Wealth and Business Planning Group, LLC (The Financial Quarterback™) is a Registered Investment Advisor in the State of Florida that provides Fee Planning and Asset Management. Depending on your state of residence, Wealth and Business Planning Group, LLC (The Financial Quarterback™) may not be able to immediately provide services. For more information go to www.thefinancialqb.com. Richard E. Reyes, CFP is an Investment Advisor and President of Wealth & Business Planning Group, LLC (The Financial Quarterback™).