Investing: a Plan of ACTION
The last, and probably the most difficult step of a successful investment plan is to control your nerves. You can't control the direction of the market, but you can control how you react to it. Your behavior can dramatically affect your investment results. Here's our plan:
- Don't be fearful. Fear decreases returns. Too many people move out of stocks after they've gone down. Sitting in cash or an ultra-conservative portfolio "until things look better" practically guarantees missing out on the returns of a market turnaround (i.e. 2009-2010). Investing is a long-term endeavor. Take tax losses in down years to set up "free" capital gains in good years.
- Don't be greedy. Greed increases losses. Too many people throw caution to the wind after the market has gone up. Abandoning your diversified target allocation in favor of more stocks or a "hot" investment is a recipe for magnified losses. Enjoy your gains by taking some off the table (i.e. rebalancing).
- Don't be naive. There is no such thing as a no-risk, high-return investment. If it sounds too good to be true, it is. If you're unsure about an investment, seek a 2nd or 3rd opinion.
- Relax. You can't do much more. Take comfort in the fact that you are utilizing a similar, if not better, investment approach than most people and even professional advisors.
- Recognize your biases. Investing is more of a mental game than anything else. In fact, a relatively new field has emerged that is devoted to the mental challenges of investing -- Behavioral Finance.
Don't waste time trying to predict the markets or find the next hot investment. Research shows that that doesn't work. Instead, control your ACTIONs. Spend your time on what matters and what you can influence. Our ACTION investment plan is a collection of best practices and years of research. They are the difference makers. They are the principles that lead to better investment results.
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