Why Investors Can Do Some Dumb Things (me included)

Do you ever do something or make a decision and then a few moments later think, “Why in the world did I just do that?” Of course you have, we all have. The good thing, though, it’s normally something small that won’t have much of an overall impact on your life.Why Investors can do dumb things

However, when we make dumb decisions when it comes to our investments or saving for our retirement, you typically don’t know the results of that decision until a year–or many years–down the road. Investing for your goals is a slow moving process so making hair-trigger decisions typically doesn’t work out so well.

Even so, investors make these crazy, long-term impact, hair-trigger decisions all the time. Let’s face it, investing can be very emotional and can cause us to make irrational decisions when we see our accounts going down in value.

We’re much better at making decisions—for the most part—when the markets are going up. However, since we’ve seen an up market for about the last eight years, things will begin to change and dumb investment ideas will soon start popping back into our heads again.

With that said, I want to take today’s post and outline a few of the dumb things investors can do and what can be done to avoid them. So, when you’re wanting to make an irrational decision when it comes to your investments – remember, you won’t think it’s irrational at the time–I hope some little synapse fires off in your brain making you think back to this post.

Sell when the market is losing value

If I had a nickel for every time I heard this back in 2008-2009, I’d have a lot of nickels. Why investors are so adamant about selling when the stock market is going down completely baffles me. There must be something in our brains that is so emotionally overwhelming that forces us to think this way in certain situations–hey, it’s even crossed my mind a time or two.

In the normal, real-world environment, when things are going down in value–a sale–we do the exact opposite. We always like to wait for sales before purchasing something. So, why do we want to sell our investments when they “go on sale?” It would make sense that we would want to buy more, but that’s often not the case.

Regardless of the reasoning of why investors like to sell when the markets are going down, it’s just not a good investment decision. Because once you sell, you then have to know when to buy back in. This is what we call market timing and no one can do it successfully.

Just think if you would have sold out on March 9, 2009 at the market bottom. Even if you just sat on the sidelines until the end of the year, you would have missed out on more than a 60% gain from the S&P 500! Granted, that may not have brought you back to even, but it was one hell of a start.

Just because the market can act irrationally doesn’t mean you have to. Even if the market is on a nail-biting downswing, but your investment goals haven’t changed, then there’s really no reason to make changes to your investments–let alone sell all of them and move to cash.

So, next time the market is testing your patience, calmly ask yourself if your goals have changed. If they haven’t, stay put and ride it out. 100% of the time the market has always come back.

Stop Contributing to Your 401k When It's Losing Value

Here’s another thing I hear quite a bit when the market is going down. As I just mentioned above, why in the world would we want to stop investing when we’re actually getting a better deal.

Even though your 401k might be losing value, you’re now going to be buying more shares of your investments at lower prices–like a sale. We all love a good sale and the same needs to be remembered for investments.

My advice in this type of situation is to not decrease your contributions, but rather keep them the same or increase them if you have the means. If you can get your investments at a 20-30% discount, then why wouldn’t you want to buy more?

Not Listen To Their Certified Financial Planner®

You know I just had to throw this one in there. Hey, what can I say, I am a CFP® and all. I get it, healthy discussions over recommendations are no doubt needed. However, you are also paying us for our knowledge and experience.

If you think you can do it better or it needs to be done differently, then why would you be paying someone in the first place? If the recommendation is to ride out the market downturn and not decrease your 401k contributions, then I would hope you would listen. Ultimately, it is your decision and if you decide to do differently, then that is your choice.

However, if you’re working with a Certified Financial Planner®, then we must put our clients’ interests first. If we make a recommendation or a suggestion, then we’re making it because that’s what we would recommend to our own grandmother.

I get that our emotions run high when the market is declining, but know that you hired your CFP® for reason. I can assure you that they want the best for you and will always make recommendations that are rational, well thought out, and without emotion.

This is a post from Clint Haynes, a Certified Financial Planner® in Lee’s Summit, MO. He is also founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.

Why a High Income Doesn't Guarantee You'll Retire ...
Is Debt The Devil? Financial Advisors Say "Not Alw...

Related Posts

Connect With Us!

This email address is being protected from spambots. You need JavaScript enabled to view it.

NextGen Wealth, LLC is a registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation discussed herein.

Legal, privacy, copyright and trademark information
Copyright © 2017 NextGen Wealth. All rights reserved
Web Design and SEO by Igniting Business

Subscribe to our monthly newsletter
"Financial Insights and Delights"

Invalid Input
Invalid Input
Invalid Input
Invalid Input