Your Money At Work: June

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Don't Let Emotional Investing Compromise Your Future

By Betsy Hartwell

Fear and greed are two basic human emotions that often derail the best investment intentions.
    Greed motivates people to believe that a glamorous, high-flying investment is all “upside” with low risk. Greed makes people jump from fund to fund or stock to stock, intending to find the “hottest” one.        
    But investment opportunities on certain “Hot 100” lists already had their growth spurt and are at their high. That’s why they’re on the list. Even the most disciplined investors are subject to “emotional investing” – they buy when the market is high and tend to sell at its low points.
    A recent study by Dalbar Inc., a provider of financial information, notes that from January 1983 to December 2002, the S&P 500 returned 12.2 percent. In contrast, the average “do-it-yourself” investor only returned 2.57 percent, returns lower than inflation rates.
    Fear hinders aggressive investing. Many investors are afraid of losing money or outliving retirement funds.
But to get the returns needed to meet long-term financial goals takes discipline. Fear of loss stimulates poor investment decision-making, and can cause bad decisions on how to accumulate, manage and distribute money.
Continued...

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