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Are You Undermining Your Own Investment Strategies? Avoid My Seven Deadly Sins of Investing

As humans we are all fallible, but that doesn’t mean we shouldn’t do what we can to avoid making mistakes, especially when it comes to our investment strategies. To help protect you against unintentionally risking your investments, I suggest you avoid these seven deadly—and common— “sins” of investing.

  1. Emotion. It may seem obvious, but I firmly believe investment decisions should only be driven by business factors. Still, I see people buying and selling based on how they feel about particular investments and/or the market. In my view, when it comes to investing, your emotions should be checked at the door.
  2. Disorganization. When meeting with prospective clients, I often find they’ve accrued a variety of investments. There is no rhyme or reason behind their portfolios. Maybe they read an article that said they should buy stock in ABC, so they did. Then an analyst on television said they should buy XYZ, so they bought that, too. Little by little they have accumulated what I call “a junk drawer of investments.” I believe this creates a very problematic situation. It’s difficult to manage numerous accounts, and a disorganized portfolio is probably not doing the work it could be doing if it were thoughtfully diversified in a manner that seeks to grow your wealth and minimize your risk.
  3. Myopia. When you’re myopic regarding your investment strategies, you fail to see the big picture. Honing-in on one small area can result in a portfolio that isn’t properly diversified, and therefore potentially riskier than you realize. For example, remember when people –bought dot-com stocks back in the early 2000s rather than diversifying into other investment sectors, this was definitely myopic.
  4. Impatience. I often see people who buy or sell too soon rather than wait for just the right moment. For example, if you read an article that encourages you to invest in the market because of its conditions at that moment, you might be inclined to invest immediately. However, we’d suggest you also consider anticipated activity, such as corrections that would make it an even better time to buy. We therefore encourage clients to be patient and let the market guide them.
  5. Greed. Michael Douglas may have said “Greed is good,” in the movie Wall Street, but I think he was wrong. I believe greed overrides common sense. It can expose you to too much risk as you chase after quick riches and fall for false promises.
  6. Arrogance. No one likes to think of themselves as arrogant, but it’s easy to become overconfident, especially if you’ve had some success with investing. But you don’t know everything—you can’t—and I believe the market has a way of humbling investors who get arrogant.
  7. Cowardice. About six months ago, I met a couple who got out of the market near the bottom in 2008. They never reinvested and have been out for 12 years. They’re too scared to go back in. I don’t believe that’s wise. How can your savings grow—or even keep up with inflation—when they’re not invested?

You may notice the above “sins” are all psychological in nature. I believe that’s why they’re tough to avoid. It’s difficult to be objective about your own money. That’s also why I believe that a professional can provide better insight into investment strategies that will make your savings work for you, and they can provide the unbiased oversight to stay the course. We’d love to help you make the most of your retirement savings. Contact us today for a free, no-obligation consultation to learn about our Invest and Protect Strategy.

Ken Moraif, CFP®, MBA
Senior Advisor at Retirement
Planners of America

Author of Buy, Hold, and SELL! Author Page