3 Investment Behaviors to Avoid

If you want to be successful, don't make these common mistakes.

Jun 13, 2014 at 2:05PM

We often talk about the pitfalls of keeping up with the market play-by-play and the havoc daily headlines can wreak on long-term investors. The latest Morningstar Investor Returns data -- Morningstar's measure of actual returns realized by fund investors -- showed that focusing on your account balance can not only cause anxiety, but can impact your bottom line, too.

The report found that at the end of 2013, the 10-year annualized difference between average investor returns and average fund returns was 2.49% . The main cause? Bad timing fueled by emotions. Too often investors are tempted to try to replicate upticks and avoid market losses by changing their investment allocation. When you jump from investment to investment, chasing returns and attempting to time the market, you're likely "buying high," which is exactly the opposite of what investors should do to receive the most consistent returns over a long period of time.

To be successful in the long term, an investor needs time, discipline, and the emotional fortitude to avoid actions that lead to diminished returns. Let's look at three of those behaviors -- and the strategies you should use to correct them.

Frozen by fear. Pride can cause investors to behave foolishly, leading them to hold a losing investment for too long in the hopes it will recover its value. They can't stand the thought of losing money.

What you should do instead: While we don't advocate jumping ship the moment a fund or asset class hits rough water, we also don't advise going down with a sinking vessel. If your investment adviser tells you to cut your losses and move your money to a new investment, think about it like this: what do you believe is the best, most appropriate place for your money? Let go of your pride and move on.

Following the crowd. Investing can be scary, so it's natural to want to stick with the herd. But history shows the herd isn't particularly wise. It's fueled by emotion and frenzy and generally doesn't make the safest or best investing decisions.

What you should do instead: Remember that your co-workers, neighbors, relatives, and other acquaintances are in no position to understand your finances or your investing goals. Your strategy should be highly personal -- there's no "one size fits all" approach.

Losing sight of the big picture. Advances in technology allow us to procure almost anything with the touch of a button, and our live-in-the-moment mindsets make it hard for us to plan for next week -- let alone 30 years down the road. It's easier to focus on the here and now, which could lead to excessive emphasis on short-term market performance.

What you should do instead: Stay engaged and focused by maintaining regular communication with your investment adviser. Focus not on performance, but on how you're tracking toward your retirement goals. You might even make a game of it by starting a "countdown" to your retirement savings goal or retirement date.

Attempting to chase returns via market timing has no place in the strategy of a long-term investor. It's natural to want to make changes when faced with market volatility, but resist the urge to be concerned with day-to-day market fluctuations. Instead, focus on your long-term strategy and make sure that your personal circumstances -- not the movements of the market -- drive any changes to your portfolio.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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