3 Psychological Mistakes That Hurt Investors | Smart Change: Personal Finance

0
187

How to Avoid It: Have a plan. If you watch an NFL team consistently do poorly, are they suddenly going to be a Super Bowl contender? Probably not. It’s OK to be wrong sometimes.

3. Overconfidence

People are often confident at the wrong times. In July 2007, just three months before the Great Recession, consumer confidence was at a five-year high (and has never returned to 2007 levels). This wasn’t just a few people brash about their confidence in the economy — it was consumers as a whole! To see if it applies specifically to you, try taking this confidence calibration test

Even if your investment rationale is solid, that doesn’t mean it will work. As economist John Maynard Keynes famously said, “The stock market can remain irrational longer than you can remain solvent.”

How to Avoid It: Stay humble, and don’t put all your eggs in one basket.

As an investor, you want to position yourself for success. That means finding great long-term investments and holding them for five-plus years, rather than focusing on what’s happening this week. It also means admitting a mistake, cutting your losses, and moving on to a better option. By understanding FOMO, Loss Aversion, and Overconfidence, you can clear these hurdles and better grow your portfolio.

Source