Investors can’t help making mistakes with their money
Money does strange things to our heads. There’s nothing worse than losing money. Yet even making money doesn’t fill us with glee.
Think about your own investing
When a share you own is well up, you worry about the price plummeting. If you sell and bank your profits, you beat yourself up when the share price edges higher.
The emotions you feel as an investor make you a bad investor. A recent study shows just how bad…
US researcher Dalbar recently published a report called The Quantitative Analysis of Investor Behaviour
. The report shows just how debilitating emotions are on your investment success.
The study showed that the S&P 500 gained 11.6% on average each year over three decades. So how do you think the average investor did?
The average investor made a measly 3.79% annually. A miserable return compared to the market.
It wasn’t all down to bad decision making though. Costs and poor active management also hit returns, John Stepek in Money Morning UK
But bad decision making had a terrible impact. Bad timing was one of the main factors. Investors selling when there was still more profits to make. Or buying before the market dipped then selling out before a recovery.
How to overcome your emotions when investing
You have to employ an investment strategy that leaves your emotions out of the equation.
This could include aspects such as asset allocation. This involves divvying your investments into different pots, such as shares, bonds, property, precious metals and cash.
A good option is regularly investing in tracker funds. Then every six to 12-months, review your asset allocation.
If your allocations change drastically, you buy and sell to set them straight again. This means you buy low and sell high, the key to making money on the stock market.
You need to find an investment strategy that removes your emotions from entering and exiting the market. This is the key driver behind your returns.
So there you have it. How to overcome the one thing standing in the way of you making bumper returns on the stock market.
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