Common Investment Errors
What can be the most common Biggest Investment error?
I don’t think there is just one because it likely depends on the individual or organization in question.
But here is my list of the most common investment errors:
Not paying attention to asset allocation. Security selection is sexier but asset allocation is far more important for 99% of investors.
Fighting the last war. Chasing past performance and investing as you wish you would have invested after seeing what just happened is a time honored tradition in the markets. It’s also a losing strategy since most investors end up following momentum but at a value investor’s time horizon, a losing combination.
Setting unrealistic expectations. The difference between reasonable return expectations and the returns investors assume they deserve is the cause of a lot of heartache and crippling errors in the markets.
Having no plan in place. Even a suboptimal plan is better than no plan at all. Creating a document (or investment policy statement in industry-speak) that lists how you plan to invest, save, your goals, constraints, etc. is something I’m guessing 90-95% of investors don’t do or never use.
Confusing your time horizon with other investor’s time horizons. Depending on the market environment traders tend to become investors and investors tend to become traders and everyone wants to be a macro investor at some point. Ignoring how others invest is the path to investment enlightenment.
Overconfidence. Intelligent investors all seem to possess just the right amount of self-doubt in their process and abilities. Falling in love with yourself is a sure way to blow yourself up in the markets.
A misunderstanding of risk. There are plenty of different ways to define risk both personally and in the markets but investors are constantly worried about risks that either don’t impact them or that they have no control over in the first place.
Using the wrong benchmark. The only true benchmark that should matter to any investor is whether you’re able to achieve your financial goals. Getting in a goals-based mindset is hard when everyone else around you is worried about beating the S&P 500 or finding the next fad investment but your financial goals are what you’re investing for in the first place.
Hope this will help you in better understanding your investment and planning them till fruition.
Happy Investing
What can be the most common Biggest Investment error?
I don’t think there is just one because it likely depends on the individual or organization in question.
But here is my list of the most common investment errors:
Not paying attention to asset allocation. Security selection is sexier but asset allocation is far more important for 99% of investors.
Fighting the last war. Chasing past performance and investing as you wish you would have invested after seeing what just happened is a time honored tradition in the markets. It’s also a losing strategy since most investors end up following momentum but at a value investor’s time horizon, a losing combination.
Setting unrealistic expectations. The difference between reasonable return expectations and the returns investors assume they deserve is the cause of a lot of heartache and crippling errors in the markets.
Having no plan in place. Even a suboptimal plan is better than no plan at all. Creating a document (or investment policy statement in industry-speak) that lists how you plan to invest, save, your goals, constraints, etc. is something I’m guessing 90-95% of investors don’t do or never use.
Confusing your time horizon with other investor’s time horizons. Depending on the market environment traders tend to become investors and investors tend to become traders and everyone wants to be a macro investor at some point. Ignoring how others invest is the path to investment enlightenment.
Overconfidence. Intelligent investors all seem to possess just the right amount of self-doubt in their process and abilities. Falling in love with yourself is a sure way to blow yourself up in the markets.
A misunderstanding of risk. There are plenty of different ways to define risk both personally and in the markets but investors are constantly worried about risks that either don’t impact them or that they have no control over in the first place.
Using the wrong benchmark. The only true benchmark that should matter to any investor is whether you’re able to achieve your financial goals. Getting in a goals-based mindset is hard when everyone else around you is worried about beating the S&P 500 or finding the next fad investment but your financial goals are what you’re investing for in the first place.
Hope this will help you in better understanding your investment and planning them till fruition.
Happy Investing
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