Are you your own worst enemy?
29 Aug 2012
By Shadforth Financial Group
Are you an impetuous and impulsive investor? Do you take solace in the knowledge that if you make a wrong decision you can always change it later?
Perhaps you’re at the other end of the spectrum and suffering from analysis paralysis, or so immobilised by fear that you find it difficult to make a decision when it comes to investing in shares, bonds or other securities.
Doing an honest self assessment of what motivates you, and your values, fears and aspirations is no easy feat – but if you’re willing to keep an open mind and to challenge your own beliefs, it will probably make you a better investor.
Here are some of the key considerations to make.
Understand how you make decisions
Understanding how you make decisions is one of the first steps to becoming a more thoughtful and successful investor. Many of us choose to get by on instinct, especially when decisions become complex or we are under the pressure of time. Is it wise of you to simply chalk it up to experience and console yourself by selling out of that poor investment you decided on in a rush?
Unfortunately, many people go on to repeat their mistakes again and again without really understanding why. Once you become aware of your natural tendencies, you can develop a plan for investing in a more logical and planned-out manner.
Consider the long-term consequences of your investments
Imagine for a moment that the decision you make today is irreversible for the next five or even ten years. Would you be satisfied that you have enough information to make a rational judgment, and are you willing to live with the constant reminder of your choice for years to come?
Many people are drawn in by the hype and hysteria, fearing that if they fail to act immediately on a particular investment they will miss the boat. Some salespeople feed off this anxiety with statements like, 'This special discount offer is only good for today' or 'These are the BEST Australian shares to buy at the moment' or 'Will you be able to forgive yourself if your family misses out on this once in a lifetime opportunity?'.
Viewing investing as a long-term approach could save you a small fortune by preventing you from getting caught up in 'the madness of crowds'. Take the time to conduct a thorough analysis about whether certain investment options are really right for you before making a decision.
Don't sit on the fence too long
While making rash decisions isn’t advisable, you also have to be careful not to lean too far the other way and spend your investment life sitting on the fence. After all, it’s a mistake to think that you aren't taking any risk leaving your money in the bank.
Over time, the ravages of tax and inflation can decimate your capital. However, a high-interest savings account could be a great place to park your capital in the short term while you complete your research and consider the recommendations you've been offered.
And if you have had a bad investment experience and feel a little like you're once bitten and twice shy, remember the importance of getting back on the horse.
Seek reliable advice about investing basics
Whether it’s advice on the Australian Securities Exchange, investing in shares, investment bonds or anything else, it’s important to seek out a balanced perspective. Don’t solely rely on what you read in the media, as the economic environment isn't always reflected in investment performance.
With that in mind, investors should keep an open mind and seek good advice. That advice should be rooted in sound financial planning and investment principles. Your adviser should be someone you can trust and rely on to give you the benefit of experience as well as sound coaching and mentoring along the way.
Getting started with investing or looking to refine your portfolio strategy? Talk to a Shadforth financial advisor to pinpoint an investment mix that’s right for you.