Managing your money is not simply a series of financial calculations. It is part art and part science. Personal finance is mainly personal, with a little bit of finance around the edges. If we can manage ourselves, our money will take care of itself. Unfortunately, this is not easy to do.
As a blind person myself, I am often baffled when people are fooled by optical illusions. Someone can look at colors in a photo and see them in various shades or even in entirely different colors than another. Additionally, people are fooled by the sizes and shapes of objects or how far something may be in the distance. If something is different than it appears, we must continually remind ourselves. For example, recalling that objects seen in the rear-view mirror are closer than they seem.
During the 20 years from 1991 to 2011, the stock market performed very well, with the exception of the banking crisis in 2008. During this time, institutional investors made double-digit returns. Yet, individual investors lost money over the same period of time managing their own funds.
If you know anything about investing in the stock market, it likely is embodied by the old expression, buy low and sell high. While that is arguably true and wise, it is hard to do. When you go to the grocery store, you feel compelled to buy things priced low or on sale.
However, when we look at our investments, the logic changes, and we experience what I think of as an economic illusion. If your portfolio has performed well and your investments are currently priced very high, it’s hard to sell them as you think they may go higher. On the other hand, when the value of your holdings drops and you should logically buy more, you invariably feel compelled to sell out and take a loss.
To overcome the emotional pitfalls of investing, you must predetermine levels where you will buy and sell or simply hold on to your investments and buy more when the market dips. This will allow you to invest like a professional money manager and succeed.
As you go through your day today, avoid emotion and win with logic.
Today’s the day!
About the author: Jim Stovall is the president of the Emmy-award winning Narrative Television Network as well as a published author of more than 50 books—eight of which have been turned into movies. He is also a highly sought-after platform speaker. He may be reached at 5840 South Memorial Drive, Suite 312, Tulsa, OK 74145-9082; by email at Jim@JimStovall.com; or by phone at 918-627-1000.