Many factors can influence investment decisions. Some for the better, some for the worse. Understanding the main motivations behind investment decisions helps us be more aware. If we are aware, we're more likely to base our financial decisions on our personal vision and not a momentary emotion or influence.
In our experience with hundreds of clients and our own investing, here are the 3 factors most likely to negatively influence your investment decisions:
1) Emotion. Comparing ourselves to our friends and others can often lead to FOMO (Fear of Missing Out). FOMO is the emotion most likely to lead to poor investment decisions. The truth is that our friends often only report the best of their investments, and it's natural to hide mistakes or risks that didn't pan out. When we compare our portfolios to theirs in the short term, and ignore long-term growth, we are more likely to jump at investments that have a higher risk. There is nothing wrong with risk investing as long as it is part of your overall plan and vision. But comparison can lead to hasty action that puts your overall plan (and principle) at risk.
2) The Media. The media's job is to be profitable, not give investment advice. And, unlike fiduciaries, media companies aren't generally required to disclose conflicts of interest with their reporting and editorial direction. Yet we can often get caught up in believing that what is reported is the only way of thinking about or interpreting a situation, especially if the situation is politically charged. Beware of media that offers a single view of the economy, or a prevalent economic trend. It can lead to poor investment decisions.
3) The Moment. Our perception of time, often called our frame of reference, is a key factor in our decision making. Are we thinking about our portfolio in terms of hourly growth, daily growth, yearly growth, or growth over a lifetime? In our experience, the longer the better when it comes to frame of reference. Having an hourly or daily frame of reference can lead to enormous swings in satisfaction. We've found this to be true in life as well as investing. The smartest road is to pick a lifetime vision, and work towards it steadily with the help of a financial advisor as dedicated to it as you are.
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Have you ever felt like there’s more to life than just balancing spreadsheets and chasing that extra dollar?