The first rule of investing is you will make mistakes. Why, because you are human and humans are not perfect. Remember a few posts ago when we told you not to chase the crowd. Trust us when we say, you will find yourself doing exactly that at some point. Mistakes will happen, but the wise investor learns from their mistakes and vows never to make the same mistake again.
How could I do that
Investing mistakes can be costly because they lead to lost value in your portfolio. When you do lose value because of something you did, the important thing is to keep you step back from the mess and take a deep breath. Most mistakes are from decisions born of emotion and the worst thing you can do is compound the problem with an emotional response.
After you’ve had an opportunity to regain your composure, take the time you need to look objectively at the problem. Your goal is to determine where you went wrong, recognize the steps you took and think about what you can to do make sure you never make the mistake in the future.
Do not, under any circumstances, vow to regain your losses by taking even bigger risks. We talked before about money and emotion not mixing and this is one circumstance where you can easily start a roaring bonfire if you are not careful.
Remain calm and focused, using logic and reason to work through the issue.
Overcome Your Mistake
One way to avoid future mistakes is to understand the two emotions that are always present in investing: fear and greed.
When the market takes a downward swing, taking your portfolio with it, fear can cause you to panic and start selling. Greed, on the other hand, can cause you to take on unnecessary risks by going for the big score. Whether it’s chasing the shiny new investment object or investing too much in a particular stock, you may not notice what’s driving your decision, but greed is at the core.
Financial planners remove the emotion from decision-making by understanding your long-term investment goals and working with you to achieve them. They help you work through investment decisions, asking the right, and sometimes hard, questions to keep you on track and rational.
If you are a go-it-alone investor, find someone you trust, who’s not afraid to push back when they think you are about to make a mistake.
Like everything else, investing has gone high-tech giving everyone easy access to hundreds of channels through which they can invest their money. But with that convenience also comes danger. A simple Web search will return thousands of stories of investments gone wrong because someone forgot about the long-term and made their decision to sell or buy based on short-term circumstances.
The pitfalls are real and hard to climb out of. The best strategy is to avoid them in the first place through wise counsel.