April 11, 2014
Greed and fear can be the death of the average investor. How can an individual learn to harness these two emotions?
Greed and fear can be the death of the average investor. How can an individual learn to harness these two emotions?
A good invester needs to lock up their fear and greed, if someone is greedy they will chase preformance and likely get themselves in to a bad situation, such as buying in to a bubble at the top of falling for a scam. Fear affects you from taking the risk you need to, in order to get a decent return, the bank is not a good place to grow your money and is not risk free due to inflation, To keep these emotions in check buy no load index funds and leave them alone, dont even look at them more than once a year, set up an automatic payment systems that will put money in your account with out you having to worry about it, the only time you would need to look at your account is when you rebalanced your account and sell the winners to buy the losses. The more you know the better you can protect yourself from your emotions, if you know what is going on, you are less likely to freak out.
That was a wonderful answer, Garrett. Let’s review.
(1) Admit to yourself that you are not the smartest person in the room and you don’t have to be.
(2) Educate yourself on markets, bubbles, and the behavior of human beings (we be crazy). Your Money & Your Brain by Jason Zweig should help.
(3) That education will help reduce your fears and harness your greed (trying to outsmart others).
(4) Spend time around others who help you with these matters, not with those folks who will make your more fearful or more greedy.
(5) Take action by buying those inexpensive no-load index mutual funds that own stocks, bonds, and Real estate. Feed them every month and hold them for a very long time. Financial freedom will follow.