If you are reading this I’m pretty sure you have made a bad investment choice at some point in your life. I know I have.
In fact, you could be making a bad investment choice right now by sitting on cash and waiting for the right time to buy into the stock market.
A bad investment choice usually means seeing the value of your investment fall significantly or worse, you lose money as a result of selling.
Now don’t get disheartened, don’t let past mistakes leave you with little confidence in investing. As humans we are programmed to be rubbish investors.
Being a rubbish investor is being human
For most people being a rubbish investor is not because they are silly with money, it’s because they are human.
As humans we are wired to go with the safety of the crowd. Think back to caveman times. If you were alone you were more likely to be eaten. If you came across a tiger you had to run rather than stick it out and see what happened.
These characteristics are still inside us today.
When the stock market falls sharply the media is consumed with terrible stories about “meltdown in the markets”, “billions wiped off shares” and “financial armageddon”.
Don’t believe me? Look up some of the headlines from the 2008 financial crisis.
So when you hear these things our natural instincts kick in. You follow the crowd, you run. You think if everyone else is selling I must too.
The problem is we know this is the wrong thing to do. Buying high and selling low. But even though we know this, we will still do it next time because everyone will say this time is different and it’s so hard to go against what you are programmed to do.
How to protect yourself
In order to stop yourself from making bad investment choices you need a couple of things.
- A plan
- A long term list of goals and objectives that determine what you are investing for.
- The right investment strategy to begin with
- This should be in line with your plan
- An independent force to stop you making bad choices when the time comes
- A Financial Adviser that understands deeply what is important to you and can help you stay on track while all others are losing their heads.
If you would like to know more on this subject I highly recommend Carl Richard’s book The Behavior Gap where he discusses this subject in more detail. He has the amazing ability to do simple little drawings that explain complex financial subjects in an easy to understand way.
Of course if you would like someone to help prevent you from making bad investment choices and help you set up the 3 points above then please get in touch for a no obligation chat at our expense.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
