"The best way to avoid making bad investment decisions is to have an investment plan and stick to it."
What is it about the stock market that seems to make its returns so elusive? Why do we look at the returns of the market long-term and wonder, “Why didn’t I do as well as that?” Is there some secret we are missing? Or perhaps the market is rigged like a carnival game?
As humans, we don’t like risk. When stocks are down, it’s hard to invest – or even to hold on. Even if we know that, historically, the market’s never stayed down.
Think about it: How many people bought Chrysler back in 1981 when it looked like they were going bankrupt? Not many. We don’t like investing when things are bad.
Conversely, how many inexperienced (and many experienced) investors jumped on the technology bandwagon in 1999, only to see a 40%+ drop in their accounts within 3 years?
Why would you buy after several years of record returns? Why invest at the top?
Our human nature causes us to sell low and buy high. We get caught up in the frenzy and just follow the crowd – right off the nearest cliff.
How Can You Avoid It?
The best way to avoid making bad investment decisions is to have an investment plan and stick to it. Good, bad, or otherwise, you need to stay on your plan. It doesn’t matter what the stock market is doing day to day or even over the course of a single year or two.
What matters is investing for the long-haul. And then sticking to that plan. I’ve seen many people lose significant amounts of money because they deviated from their plans. Some gave up when the market was down. And then kicked themselves when the market came back.
Others walked away from their investment plan in the late 90’s to pursue the “gigantic returns” of technology stocks. And they set their retirement back a decade or more doing it.
If your plan is sound and your investments are sound, there are very few reasons to deviate from that plan ever. I don’t have the space here to discuss how to develop an investment plan. There are a multitude of books on the subject – many of them available at your local library. Or you can hire an investment advisor.
Either way, you need to find that plan and stick to it.
If you have more questions on investment plans, we encourage you to contact us today.