Step Back:
When bouts of volatility return to the market, we feel it is appropriate to take a step back and make sure you are in the right mindset. Whether we’re distracted by attention-grabbing headlines or talking heads, more often than not we can be our own worst enemies by making rash decisions. The Visual Capitalist featured a piece that outlined the six biggest mistakes investors make when things get a little volatile.
These are:
- Confirmation Bias: Seeking information that validates your thoughts
- Recency Bias: Believing that the current trend in place is likely to continue
- Overconfidence: Overestimating your ability
- Big Swings: Swinging for the fences trying to hit a home run
- Home Bias: Investing in markets that are more familiar
- Negativity Bias: Remembering the losses and relying on those for future expectations
By having a financial plan that adequately takes into consideration risk tolerance, time horizon and liquidity constraints you are less likely to make irrational decisions. Will it be perfect and will you bat a thousand? Maybe not, but we believe you will be better off in the long run versus trying to time the market at every twist and turn.
Source: http://www.visualcapitalist.com/6-biggest-mistakes-ordinary-investors-make/
