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The Investor’s Dilemma

The investing dilemmaWill the Human Side of Investing Make You Poor?

Many investors face a dilemma. You need to grow your assets so you can meet your personal financial goals. Yet emotions and a fear of loss often drive self-defeating investment decisions. Let’s look at how emotional decisions interfere with your ability to develop and maintain an investment strategy that works to grow your investments year after.

1. Fear of the Future

When you’re uncertain about the future, you ask questions like: “Will I have enough money to maintain my standard of living? How much do I need to save? How do I know what is the best investment?” To make matters worse, the media preys on your fears for the future so they can sell you products.

2. Forecast and Predict

As an investor, you want to know what’s going to happen in the future with inflation, long-term interest, rates, etc. So, it’s easy to convince yourself that someone has the information, power, and insight to forecast the future.

3. Track-Record Investing

Investors often look for stock managers whose superior market performance, or track-record in the past was better hoping they will continue to enjoy excellent performance in the future.

4. Information Overload

Today, you have access to so much information that it’s easy to become overloaded. This deluge of information often intensifies doubts about investing.

5. Emotion-Based Decisions

As investors, we never overcome our own humanity. Even if you prefer to think you’ve made investment decisions based on logic, typically emotions such as trust, loyalty, hope, greed, and fear drive our investment decisions.

6. Breaking the Rules

There are three commonly accepted rules of investing: 1) Own equities 2) Diversify and 3) Rebalance.

And, the golden rule of investing is: Buy when prices are low and sell when prices are high. It sounds simple. However, when you make decisions based on emotions they can break these seemingly simple rules, which can undercut your portfolio performance.

7. Performance Losses

When you don’t capture the returns you expect, it’s called a performance loss. Unfortunately, because investors so frequently break the golden rule of investing, they often don’t receive the rate of return they expect. This effect compounded over a period of years significantly decreases your potential to reach your financial goals. Such loss creates even more frustrations and fears about the future, once again initiating the cycle. 

The end result of the Investors’ Dilemma is not having enough money combined with worry, frustration, and anxiety about your inability to accomplish your meaningful life goals.

At Hammond Iles, we’re all about getting you to your goals…because that’s what matters most. Our process helps you take control of your finances with a powerful, disciplined and diversified approach to investing, education, and objective advice. To get your financial MRI and see how you’re doing, contact (800) 416-1655 or clientcare@hammondiles.com. 

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