Why Investing is NOT Entertainment

“We get into trouble when we confuse investing with entertainment.

A decade or so ago, investing had become America’s favorite spectator sport. Everywhere you went people were talking about finding the next hot stock, mutual fund, or alternative investment. Magazines with covers like “Ten Hot Funds to Buy Now” and “Five Stocks That Sizzle” made investing sound fun. You couldn’t turn on the television without seeing some lout screaming “Buy! Buy! Buy!”

Most of the stock market coverage in the media was designed to appeal to our fantasies about getting rich quickly—our wildest financial hopes and dreams. And most of us were eager to swallow the story that we could get rich quickly in stocks. So, despite knowing at some level that market timing, stock picking, and day-trading are hazardous to our wealth, many people still did those things.” –exert from The Behavior Gap

So if the media is constantly showing us all these entertaining articles about investing, how do we keep our behavior in check?

When you hear that your neighbor was invested in Apple and just made a 50% return overnight you want a piece of that don’t you? It is so easy to jump on the bandwagon in hopes of also striking some luck.

That’s just it. Luck. And I don’t know about you but I would rather not leave my money up to luck. But investing doesn’t have to be that way. Here are three suggestions of how to keep your emotions in check when investing.

  1. Have a plan you feel confident in

This is the number one thing you can do to stay on track. If you feel confident in your investment plan you won’t be worried about the “next big thing.” When it comes to investing it is CRITICAL that you take the slow and steady approach. If you feel confident in the portfolio you have set up and the goals you have, all you have to do is keep feeding the flame. We get into trouble when we veer off the path because we see something that might look faster, easier or better but stay the course and it will pay off in the long run!

2. Developing a checklist of questions before you make financial decisions

“How are you feeling? Are you acting out of fear or greed—or do you have a clear take on what’s going on? Are you reacting to the media? Are you doing this because other people are doing it? Are those people good role models? Does this decision flow naturally out of your plan and support your goals? This checklist approach works for pilots and doctors. Likewise, it will help you avoid mistakes in investment behavior.”

With a checklist like this, you will be forced to look at the decision from an objective view. Then wait. Wait three days to see if you still feel the same way. You would be amazed at how many impulse decisions come when we don’t take the time to wait before we act on something. This book gives example after example of people who called their financial planner last minute to take all of their investments out or put all their investments in etc. because they had not looked at things from an objective view.

3. Don’t trust blindly

Financial planners are great. They can be so helpful when life gets complicated and you need a second pair of eyes to help you see what to do with your plan with money. However, Carl Richards, financial advisor of 20+ years explains:

“Financial advisors are required to disclose to you the information you need to make decisions. Your job is to read and ask questions until you know what you are talking about and feel ready to make decisions. “Whatever say” is not a good answer to “What do you think we should do with your portfolio?”

If a financial planner is telling us we need to come in educated and not just trust what he is saying, I am pretty sure it is important. What happens is that we feel overwhelmed, inadequate, worried, and helpless when it comes to our investments so it feels easier to just turn it over to someone else that will take care of everything for us right? Don’t view a financial advisor as your free ride ticket to financial bliss. This is YOUR money. YOUR life. You are in charge of creating the wealthy life you want to live. Having a financial planner is not an excuse to avoid educating yourself on investing and becoming financially literate. YOU have more power than you think! YOU are capable of learning this! And when you do, you will be able to trust the plan so much more and have the discipline to make the needed behavior changes.

Let’s keep our emotions in check so that we can build a wealthy and fulfilling life.

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