THE SEVEN DEADLY SINS OF INVESTORS

The seven deadly sins of investors


It has been almost five years since the worst of the financial crisis in the US, and investors have learned a lot since then, or at least that's what I think.

According to psychologists and financial advisors, little has changed in terms of the behavior of investors who continue to commit the kind of mistakes that have gotten into trouble for decades. Left dazzled by the latest trend, they want to follow the masses and just seem to overlook important details, such as high annual fees they charge many mutual funds.

There are ways around these setbacks. Investors need a concrete and rapid action to plan your investment objectives, need to find a financial or family trusted advisor to help them weigh their decisions and should stop paying so much attention to short-term events that are newsworthy.

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Then the seven deadly sins of investment and how to avoid them.

Lust: follow the recent performance

The investor belief that the recent performance will determine the future performance is one of the biggest traps that fall, experts say.

"People tend to invest in something that has fared well recently," says Terrance Odean, a finance professor at the Haas Business School of the University of California, Berkeley.

Before the financial crisis, investors immersed themselves in the housing market, convinced that housing prices never weaken.

The most recent example is gold. The metal had a rally even before the crisis, and investors rushed toward him. An important factor was the great attention soon received gold in all media.

To combat this behavior, advisors indicate that it is important to study rates and the historical performance of the popular investments. Instead of studying only the prices of the last months or years, notice periods that date back at least 10 years ago, and sometimes more. For example, gold prices have been rising since 2001, but in the long term have been lagging behind the actions and have barely kept pace with inflation.

Lehman Brothers filed for protection under the US bankruptcy law 15 September 2008. What investors have learned since then?

Pride: overconfident

Investors, especially novices, often think they know more than they actually know about a particular investment, say psychologists and counselors.

"Our view of ourselves is too high," says Odean, finance professor. "We all need a healthy dose of self-doubt and humility."

The best way for investors to control their overconfidence is sure to have an impartial person you can talk about your investment ideas. This person could be a financial advisor or a close friend or relative who is not affected directly by any decision.

Sloth: ignore the costs

Investors often simply do not pay attention to details. Consider your willingness to invest in expensive mutual funds that do not have good performance, says James Choi, an associate professor of finance at the Yale School of Management professor.

Investors, attracted by the name of a fund manager or the recent performance, do not look at the fees. Instead of investing in a fund that tracks a broad index such as the S & P 500, which charges a very low rate, many investors often place their bets on a managed by a professional stock picker charged a much higher share fund, Choi says.

But the most expensive funds tend to be lower than the economic results, Choi said, citing several studies.

Envy: want to join the club

Before the stock market debut of Facebook FB -0.21% in May 2012, financial advisers were inundated with calls from customers who want to have this before it went on sale That was only a limited number of securities to retail investors only increased the furor, analysts say.

The desire to be part of an exclusive issue often prompts people to make bets that do not fit with the overall objectives of a portfolio. Investors who put their money into Facebook just after its IPO saw action in the company fall below US $ 20 several months later, much less than its starting price of US $ 38. (The stock now trades at about US $ 41).

Susan Strasbaugh, owner of Strasbaugh Financial Advisory in Colorado, which has $ 100 million under management, recommended to open a separate account for investments like Facebook, which do not fit the portfolio of a client, and invest in them no more than 5% .

Ira: not admit failure

People hate losing money. The loss aversion, as psychologists call it, is common. Was when investors refused to sell the shares of technology companies as industry bubble burst in early 2000, just as they did with financial stocks during the crisis, as they still do today.

"We want to be honest with ourselves and admit the loss," notes Brad Klontz, a clinical psychologist and assistant professor of financial planning at the State University of Kansas.

This thinking can be dangerous. If you regret a decision, it could be sold too soon, but if you can not accept defeat and costs of an investment, you could keep active for too long, say the psychologists.

Instead of only investigating the finances of a company, investors must analyze the whole economic climate, experts say. If a company depends on the recovery of the labor or housing market to have good performance, investors have to understand the landscape of these areas and plan their investments based on that.

Gula: live the moment

Often workers do not save ahead of time because they perceive their retirement as a distant event. The key, says Klontz, is to have a series of questions about what lifestyle you want to take when you retire: How old? Where will you live? What is he doing?

When the investor will see that there are only 20 or 30 years to retire, he is encouraged to contribute more to your retirement plan.

Greed: follow the masses

When the stock market collapsed in 2008, many investors fled stocks. The same phenomenon occurs now with the bond market as investors move away from debt, concerned about rising interest rates.

To combat the inevitable fear of a stock market decline or other adverse events, advisers say it is crucial that investors have a detailed plan which be loyal regardless of short-term events. The plan should outline its target for bonds, stocks and other investments, and be based on your retirement goals.