Most people have average investing skills, so the best approach is to buy and hold a diversified portfolio of investments and control what you can. Here are four very common behavioral mistakes that you can correct to help make and keep more money:
• Investors are often biased toward what they know. Many investors tend to over-allocate in company stock — resulting in many of them missing out on potential gains and the benefits of diversification, which can reduce the risk in a portfolio.
• Emotion wins over rational judgment. It’s a fact that people hate to lose money, and it is this fear of regret that causes investors to hold on to losers too long and sell winners too early. Investors tend to hold on to losing investments hoping that they will come back, rather than taking advantage of tax breaks. However, the opposite is true with winning stocks, because when they are scared of a downturn and want to lock in profits, they will sell stocks or funds too early and miss out on future gains.
• Many investors are overly confident. Many people have an unrealistic assessment of their own investing abilities, which can cause them to overtrade and pay the resulting higher fees and taxes.
• Shortsightedness causes imbalance. Many investors tend to view each investment and account (401(k), IRA, etc.) separately rather than collectively, which can have a negative effect on asset allocation. This can also lead them to chase hot stocks, trade excessively and sell at the wrong time. It should be very alarming to an investor if all of his or her accounts and individual investments are up at the same time, because this may be a sign that they are under-diversified and taking on too much risk.
Develop a trading strategy and stick with it to take emotion out of the equation, or take a long-term approach to your investments and don’t look at them more than once or twice a year. Also, don’t look at your investments individually, but look at your portfolio as a whole.
INVEST Financial Corporation is not affiliated with Iowa Wealth Management or Integrity Financial Group. This article is general in nature and should not be construed as tax or legal advice. Investment Centers of America Inc. does not provide tax or legal advice. Please consult your tax and/or legal advisor for guidance on your particular situation. The information in this report has been obtained from sources considered to be reliable but we do not guarantee that the foregoing material is accurate or complete. This article is not an offer to sell or a solicitation of an offer to buy any security and may not be reproduced or made available to other persons without the express consent of Investment Centers of America Inc. Securities and insurance products are offered through Investment Centers of America Inc., member FINRA, SIPC, and affiliated insurance agencies. *Diversification and asset allocation do not guarantee positive results. Loss, including loss of principal may occur.Information provided by Jason Kleemeier, financial consultant, Iowa Wealth Management. Located in Integrity Financial, 1217 N. Sixth Ave., Suite 4, Winterset, 515-462-4608.