Greetings! I trust that this will find you well and enjoying life.
Last week I read an article in the Wall Street Journal that had several great tips on successful investing. It was titled The Three Mistake Investors Make Over and Over Again and the following is I believe worth passing on.
Incorrectly predicting your future emotions. Too many investors are confident they will be greedy when others are fearful. None assume that they will be the fearful ones. Even though someone has to be by definition. If you are at a place in life where volatility troubles you, the best approach may well be to take a more conservative approach from the onset which would insulate you from major market corrections.
Failing to realize how common volatility is. Napoleon was said to define a military genius as a man who can do the average thing when all those around him are going crazy. The same holds true for investors. One way to keep a cool head during market drops is realizing how common they are. If you don’t understand how normal big market moves are, you are more likely to think a pullback is something unusual that requires attention and action. It often doesn’t.
Trying to forecast what markets will do next. The inability to forecast hasn’t prevented the desire to keep forecasting. No matter how bad forecast are, investors keep coming back for more. Last year Alan Greenspan former Federal Reserve chairman said “We really can’t forecast all that well and yet we pretend that we can. But we really can’t.” The great investor Benjamin Graham once wrote that the purpose of having a margin of safety – an emergency fund, job flexibility and avoiding expensive stocks – was “rendering unnecessary an accurate estimate of the future” That sure makes sense to me. The author concluded with the thought that we have no control over what the markets will do next however, we have complete control over how we will react.
Having a portfolio that matches who you are, understanding how it benefits you as an investor and sticking to your strategy is what makes for a successful investor. If you have questions, comments or feel that I can be of service in any way with your retirement planning, don’t hesitate to call.
Best regards.
Jeff Christian CFP, CRPC