Is Behavior important for my investing success?

by brendon on October 3, 2011

Kansas City investors and investment advisers shouldn’t give emotionally-driven decisions the opportunity to shape their investment portfolio or philosophy about investing.  Paying too much attention to global uncertainty and the media can lead investors and their advisers into behaviors that invariably penalize the investor with lower rates of return and lower account balances yet reward the adviser or company brokering a product (or a trading platform) to facilitate negative activities or behaviors.

Here’s an example of one such behavior:  market timing.   Think about your employer-sponsored retirement plan.   How many times in the last year have you changed your 401k allocation?  Most individual investors will lower the % of money invested into stocks when they hear recent news highlighting the poor performance of the S&P 500 ending this last quarter.   Is this is a positive or negative behavior and why?

It’s a negative behavior because historically investors making moves like this miss the upside of volatility with too much (or all) of their money allocated to what they believe is a “safe-haven”, i.e. cash, money market or bonds.   So the reason it’s negative is because the investor invariably misses the next opportunity for gains.   (See my video on “Market Timing” at the home page for additional info.)

The next reason this is considered a negative behavior is emotion and not logic initiated the process of making the allocation change.  (Don’t be confused when it’s easy to say logic was used to make the decision when logic only justified the process that emotion began.)

One of the easiest ways to avoid this negative behavior is to focus on the long-term expected rates of return for the asset-classes your money is invested into.   If you have no idea what asset-classes you’re invested into, contact me right away to have an analysis done so you can see “what’s under the hood” in your investments.   The results will surprise you and you’ll understand what it takes to own a portfolio designed to capture market rates of return with lower risk.  You’ll also be a better investor because ups-n-downs in the S&P 500 won’t impact you as negatively as they are right now.

Take control by educating, understand what market rates of return are and capture them with proven investment strategies.

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