Avoiding These Three Major Mental Mistakes Might Just Save Your 401(K) Savings for a Rainy Day!
A piece of advice for anyone currently having a 401(k). In a situation where the market is approaching record highs, the largest hindrance that can affect your hard-earned retirement savings is not the market. Rather, it could be you!
Yes, you heard right.
Your mental miscues, biases, and emotional decisions can result in psychological distress, which in turn can make you have poor investment decisions.
Let’s have a good at one example. Suppose you have made a fortune investing in high-value stocks such as those of Netflix or Amazon. Yep, you made some great financial decisions. However, now it’s gotten to your head that you’re some sort of super-investor, the likes of Warren Buffet.
Being Deluded with Your Own Ability
Moreover, you might be obsessed with the idea that the longest bull market will last for eternity. On the other hand, you might believe that a drop will happen sooner rather than later.
Additionally, you might also make the mistake of only getting info from individuals that conform to personal beliefs regarding the direction in which the market is taking.
However, behavioral finance, which investigates the relationship between money-related moves and investor psychology that people make, have recorded the multiple personality traits that result in errors while making a decision.
According to the president of Market Semiotics at a research firm in Vermont, Mr. Woody Dorsey, he believes that there are major ways in which investors thinking can result to flawed decision making and subsequent blunders, and additional ways in which they can omit making these mistakes altogether.
After venturing a decade into bull markets, it can be quite tempting for investors to credit their success and desirable portfolios to some of the decisions that they made over the years. This is a big mistake because it makes them ignore the basic knowledge that the long climb in stock prices, for example, is what catapulted the Standard & Poor’s 500 index by whopping 330 percent since 2009!
When one becomes overconfident, they believe that they are better informed and much smarter at investment decisions than their contemporaries.
According to Sunpointe Investments CEO, Michael Pompain, he comments on the situations, saying that such investors believe that because they made an investment that resulted in positive results, they are now automatically smart.
Additionally, he quips that investors that normally think highly about their own talents and abilities, are the ones most likely to take ‘foolish risks’ due to having delusions of grandeur. He or she is most likely to go ahead and purchase a ‘hot stock’ without doing sufficient background research.
They tend to dip their hands too deep in trading, and rarely keep in tune with their future financial plans. In short, don’t be that person!
Not Looking for Other Options
One of the biggest mistakes an investor can make, and one that can make them run into tons of trouble is searching only for info that confirms with bearish or bullish views regarding the stock market.
According to finance professor at the University of California, Berkley, Mr. Terrance Odean, he notes that when most people have an investment idea, they usually look at the reasons why it is right, and avoid all the instances of it being wrong.
This can be quite a dangerous strategy for a number of reasons. For starters, investors who strongly believe that the bull has space to sprint, will often invest into the market with a lot of aggression, and this increases their chances of incurring heavy losses if they are wrong.
On the other extreme, individuals who believe too much in the apocalyptic crush of the market, may not be too keen to invest and increase their stock holdings. Hence, they risk missing out on great gains in the event the stock is rising.
As a rule of thumb, you should strive to be an optimist and pessimist at the same time!
Betting Big on a Continuous Trend
This habit is known as ‘recency bias’. It’s a belief that a particular trend will continue, regardless of shift in the paradigm or the environment.
This could translate to investors today making a massive mistake by betting on a stock whose price is steadily rising, and believing that it will continue to do so despite volatile market conditions.
That being said, an investor should be wary and on-guard that any market crashes could occur at any time.
More inFinancial Advisor
Business Ideas You Can Work on While Keeping a Full-Time Job
While being a successful entrepreneur definitely requires one to put in hard work and long hours, a person can still dabble...May 2, 2023
Shocking Facts About the Bugatti Divo
Almost all car enthusiasts have one thing in common: They are eager to know everything and anything about cars. More often...April 25, 2023
Throwback: When Vin Diesel’s Fast & Furious Car Was up for Sale!
In 2022, gearheads and avid fans of the “Fast & Furious” film franchise rejoiced. This is because the 1968 Dodge Charger,...April 25, 2023
Full Coverage Auto Insurance: Everything You Ought to Know
Cars are expensive investments that require protection. That is why car owners need full coverage auto insurance. And it is the...April 24, 2023
Investing Your Emergency Funds For Liquidity
Liquidity is the most important thing to remember when investing your emergency funds. It is essential to make sure that you...April 13, 2023
Why You Should Be Your Own Financial Advisor
While having your own financial advisor is generally a wise choice, sometimes, finding the right advisor might be a real challenge....April 10, 2023
The World’s Absolute Best Neighborhoods
Cais do Sodré – Lisbon, Portugal Located in the heart of Lisbon, Cais do Sodré exudes a unique charm that makes...April 8, 2023
Everything You Need to Consider Before Getting a Tesla
Buying a used Tesla can be an exciting and rewarding experience, but it’s important to understand what you’re getting into before...April 8, 2023
Tesla Model X Plaid: Combining Luxury & Performance
The Tesla Model X Plaid is a special edition sports car from the renowned electric vehicle manufacturer, Tesla. The car offers...April 1, 2023