Don’t Let Your Behavior Ruin Your Investment Plan

September 28, 2006

Check out yesterday’s Getting Going column, which talks about behavioral finance and it’s impact on investors’ decisions. The article is good but what I really like is the box inside the article that highlights four destructive behaviors:

Recency – Thinking what happened last year will happen again THIS year. Remember that things tend to revert to the mean (average) over the long term. I remember during the internet bubble people assumed the 20% returns would continue indefinitely.

Procrastination – Putting things off because they seem so far away. I know from experience how fast time goes by.

Loss Aversion – People don’t like to lose money, no matter how far away retirement is. In reality, market declines are the best thing that can happen for someone routinely saving money in a 401(k).

Self-Control Issues – For some it is much easier to spend than save. Self-control is one of the most important ingredients of any success.

Just understanding that these behaviors exist can go a long way in helping people overcome them.

One response to Don’t Let Your Behavior Ruin Your Investment Plan

  1. Self Control and Control both- you are absolutely right.