There’s an unfortunate reality of investing – many people are ill-prepared to invest; consequently their investment experience is doomed from day one.
Why? Here are a few reasons:
Believing the headlines – Many media organisations are running on fumes, consequently it’s tough to find objectivity and a measured tone when it comes to money talk.
Press releases often run unchecked as news, market falls make for a colourful front page, while market gains are relegated to page 30 – this quality publication excluded of course!
Selling after a fall – We’re often spooked when our assets lose value. Falls make us scared of further falls, so we capitulate and sell.
A company called Texon Petroleum illustrated this scenario in the recent market downturn. On August 1st Texon closed at 55 cents, by August 9th it fell to 36 cents as scared investors sold out.
Unfortunately for the sellers, Texon spent the rest of August moving back up, eventually closing the month at 61 cents!
Chasing gains – If an asset goes up, we’re envious, and then we want to buy it – in case it goes up further.
We mistakenly believe assets that have gone up will keep going up and it’s usually why the most money flows into markets right at the end of a boom. Tulip mania, South Sea bubble, Poseidon nickel, Japanese asset bubble, dot-com bubble and countless housing bubbles were fuelled by investors chasing crazy gains they should have ignored.
Not understanding risk – Risk is different for many people; usually it’s the fear of loss, so we do our utmost to avoid it – only to ignore other obvious risks.
Buying a house with the minimum deposit or allowing savings to be eroded by tax and inflation can be rationalised, despite the risks they pose.
Today our greatest risk is outliving our money and to avoid that, the appropriate type of risk needs to be accepted.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re Australia’s top financial adviser.
