Are You the Problem With Your Investments?

Overcome Psychological Factors Behind Low Returns Having trouble viewing images? Click here. January 17, 2012 Are You the Problem With Your Investments? The Tip: Overcome the psychological factors behind low returns by working with an investing advisor. For 17 years, DALBAR, Inc., an independent research company, has released an annual study of investor behavior. Each and every year, this report shows that investors are their own worst enemies when it comes to building wealth. They consistently make irrational investing decisions, significantly reducing the growth of their investments. All the Wrong Moves From 1991 to 2010, the S&P 500 grew an average 9.1% each year. But the average mutual fund investor only earned 3.8% during the same time frame. The major reason for this gap? Investors don't hold their investments long enough to take advantage of market performance. The average investor holds his funds for only 3.2 years—far short of the 20-year window experts say is necessary to ride out the market's ups and downs. To make matters worse, investors often buy and sell at the wrong times, usually in response to bad or incomplete economic news. Inside the Mind of an Investor DALBAR's study also pinpoints the psychological factors behind these bad decisions. A few of the most damaging include: Expecting high returns with low risk Making decisions without considering all the implications Copying others' behavior even in the face of unfavorable results Reacting to news without further analysis Believing good things happen to "me" and bad things happen to "others" These factors can overpower an investor's rational decision-making abilities, and, as years of this study show, that leads to underperforming portfolios and lost wealth-building opportunities. Overcoming Mental Hurdles How do you keep these factors from ruining your returns? Just knowing they exist is one step in the right direction. When you feel your emotions taking over, decide to remain calm and put your rational side in control. It's also wise to work with a professional advisor who can give you objective advice about your investing decisions. An experienced advisor has seen market ups and downs before and can help you make decisions based on facts—not fear. Find a Pro Today! Dave's investing Endorsed Local Providers (ELPs) will help you keep your investments on track with great advice. Each ELP has the heart of a teacher and will make sure you understand how investing works so you can stick with it. Contact your ELP today! Share this:

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