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January 2, 2017

20 reasons why people are bad at investing

We have listed here 20 reasons why people are generally bad at managing money. Sadly, most investors are not learning the lessons from previous mistakes. We offer a secondary opinion – after all, in medicine is very common, so why not for investing? If you are unsure if you have found the best solution, please get in touch and we can show you the best available options to reach your financial goals.

  1. Do you know the fuel consumption of your car? Many people know the gas milage down to the first decimal – but most people have no idea how high the charges on their investment products are. However, in most cases, the investment fees are higher than the fuel bill.


  1. You are worried about the future of the Euro, but most of your investments are in the Eurozone.


  1. You invest according to what has performed well in the last 1-3 years and not whether the investment helps you reach your long-term goals.


  1. When you think about your own retirement plans, you are trying to make sure that you can live a comfortable life well into the 70s or even 80s. However, you forget how many people you know who are older than 90.


  1. You have never been able to predict what the market will do next. This doesn’t deter you from trying to predict what the market will do next.


  1. You spend hours researching the best digital camera, that costs $2000. But when you invest >10x as much in a mutual fund, your due diligence rarely takes more than 15 minutes.


  1. You invest in a European bond fund that charges annual fees of 1% while the 10 year European government bond index currently yields less 1%.


  1. You hate finance, think it is confusing, and don’t want anything to do with it. You do, however, love money. You see no irony in this.


  1. You let your political views guide your investments. While you were arguing why the current government has it all wrong, the equity market spent the last five years rallying more than 100%.


  1. You are unshakably certain about things you know very little about, e.g. regarding the right monetary policy.


  1. Your perception of financial history extends back about five years. This leads you to believe things like bonds are safe or that the average recession is as bad as 2008 was.


  1. You think buying index funds and dollar-cost averaging is boring without realizing that the purpose of investing isn’t to minimize boredom; it’s to maximize returns.


  1. You say you’ll be greedy when others are fearful, then seek the fetal position when the market falls 5%. Basically, you are investing for the next 20-40 years but get stressed when the market has a bad day or quarter.


  1. You worship investment „gurus“ whose only real skill is marketing themselves. Their career track record probably lags a defensive bond fund and their only track record is in selling books and newsletters.


  1. You seek advice from a doctor to manage your health, an accountant to do your taxes, a lawyer to manage your legal problems, a plumber to fix your plumbing, a contractor to build your house, a dentist to fix your teeth and a pilot to fly when you travel. But then, with no experience, you go about investing all by yourself.


  1. You check constantly your bank statements without realizing that a tree doesn’t grow faster either if you dig up the roots on a daily basis.


  1. You worry about things you can’t control (where will stocks be in 12 months), and neglect things that you can control (savings rate, costs).


  1. You work so hard trying to make money that you don’t have time to think about, or plan, your finances. This is the equivalent to spending so much time buying a sailing boat that you have no time to sail.


  1. You think the stock market is too risky because it is volatile, without realizing that the biggest risk you face isn’t volatility. It is not growing you assets by enough over the next several decades.


  1. Your definition of long-term is anywhere between now and the next 10% correction.


(hat tip Morgan Housel)

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