If investing seems complicated, it’s mainly because of the way we’re wired. Over eons, we’ve developed tendencies and biases that have helped our species to survive. Those tendencies are based on the primal emotions of fear and greed. Many investors fall into these two categories of emotions.
Greedy investors tend to time the markets, buy the latest hot stock and severely lack diversification. On the other hand, fearful investors love cash, avoid equities and also think another big crash is just around the corner.
Both greedy and fearful investors are examples of the extreme opposites of the scale. These investors will often move from greed to fear repeatedly. The common theme between both of these is they tend to react to the day-to-day “breaking news” headlines.
The most successful investors use a much simpler approach. They work to create a long-term investment strategy based on their goals. And then they trust that strategy, regardless of what the market does in any given day, month or year. A plan can help us overcome the emotional baggage of fear and greed. A good plan takes into account your goals, time horizons, risk comfort levels and lays out a clear path to earning the returns you need. Remember, not everyone needs to earn the same rates of return; it is all based on the amount of risk a person needs to reach their goals!
The bottom line is this: arming yourself with an investment strategy roadmap you trust both simplifies the process and increases your likelihood of success. Just as importantly, it can free you to stop worrying about the markets and enjoy your life more. Don’t hesitate to contact us if you’d like to discuss investing further.
Bijan Golkar is a Certified Financial Planner™ and licensed tax preparer with FPC Investment Advisory Inc. in the San Francisco Bay Area.