Don't Make Me Say I Told You So: The Only Investment Book You'll Ever Need by Patton Jim

Author:Patton, Jim [Patton, Jim]
Language: eng
Format: epub
Publisher: Jim Patton
Published: 2016-02-28T18:30:00+00:00

1 Peter G. Gallanis. NOLHGA, the Life and Health Insurance Guaranty System, and the Financial Crisis of 2008–2009. New York: American Bar Association, June 5, 2009. http://www.nolhga.com/resource/file/NOLHGAAndFincialCrisis.pdf

Chapter 5

THE MOST COMMON INVESTOR MISTAKES AND HOW TO AVOID THEM

“Success does not consist of never making mistakes but of never making the same one a second time.„

– GEORGE BERNARD SHAW

SECTION 1

The Most Common Investor Mistakes – And How to Avoid Them

In 2009, the Investor Education Foundation of the Financial Industry Regulatory Authority conducted a survey to test the financial knowledge of Americans. Although 67% of 28,000 respondents considered their knowledge of finances to be “high,” just 53% correctly answered this question: “True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.”1 In response to another question: “If interest rates rise, what will typically happen to bond prices?” The multiple choice answers provided were that bond prices would rise, fall, stay the same, or “there is no relationship between rising interest rates and bond prices.”2 Only 28% of respondents correctly answered that bond prices will fall in this scenario.3

This lack of basic knowledge of money and investing concepts means that there are a lot of investors handling their investments who don’t have a grasp on the basics of investing. Unfortunately, it leads to mistakes in managing retirement investments and income. The problem with making these mistakes is that it leaves investors with less money in their retirement nest egg. This means less money to use for income over the course of retirement, which may lead to an unthinkable result: RUNNING OUT OF MONEY.

There many reasons that individual investors have done so poorly, and we will examine the most common reasons for poor investor-performance in this chapter. Some of the primary reasons are:

Overconfidence in investing skills

Failure to control emotions when investing

Failure to diversify

Focusing on the short term

Managing by media

Trying to predict the future

Trying to time the market

Chasing yesterday’s winners

There are, of course, many more mistakes that investors make when investing for retirement, but let’s look in-depth at some of these more common mistakes and ways to avoid them.

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