Like most activities, it is possible, and perhaps even likely, that you will develop some bad habits while you progress through your journey as an investor. In fact, some bad habits are formed and undermine your portfolio without you even realizing it. As result, it is important to always make informed decisions and pay attention to details even when they seem small. Furthermore, when breaking bad habits, it is crucial to first identify them and recognize which are most significantly hurting your own investment strategy. To get you started, here are a few common bad habits that could be extremely beneficial for you to shake:
Forgetting to Stick to the Big Picture:
If the main objective of your investment strategy is to build and store wealth, one of the most necessary traits to have is great patience. Moreover, it is often more financially beneficial to consider results throughout a significant period rather than just with regard to a stock’s (or fund’s) most recent performance. This is because even stocks that have been recognized among the “best buys” ever have experienced volatility in the short-term. For reference, top investors like Warren Buffet tend to promote a “buy and hold” approach rather than a “short-term trading” approach. This is because they recognize that no investment will be perfect, but sticking to a well-informed choice might ensure that the investor does not miss out on returns over time while they jump from stock to stock. In summation, if you only focus on the short-term and lose sight of the big picture, you could end up diminishing your returns in the end.
Investing Based On Emotional Attachments:
We have discussed strategic and data-driven stock picking in multiple articles but its importance cannot be stressed enough. Although it is a relatively straightforward concept to understand, many investors struggle with making the best decisions for their portfolios because of emotional attachments to particular investments. For instance, an investor might heavily weight their portfolio with shares of their favorite tech company because they have developed a sense of loyalty from using its products. Further, this investor might be relying too heavily on their emotions rather than making the investment because it fits the data-driven strategy they had developed. Ultimately, in this scenario, If the company were to fall into a significant dip or crash the investor could take a huge financial hit — without having data to support and justify their original investment decision.
Neglecting a Portfolio’s Allocation for Lengthy Periods of Time:
Since many investors have the goal of building and storing wealth over time, some tend to fall into the bad habit of buying the neglecting their assets. By this, I mean that some investors make their initial desired investments, but then let their portfolio sit dormant for months or years without re-assessing their assets. While it is possible to make a profit this way, you might want to consider actively rebalancing your assets instead. One possible way to do this would be to plan a regular (or semi-regular) rebalancing schedule in order to ensure that you have the right asset mix to meet your goals. Maintaining the same stocks, bonds, or ETFs with the same allocation for extended periods of time can be profitable, but it also leaves more room for potential hurdles in meeting your goals along the way. Remember, the markets are constantly changing so it might be smart to consider having your portfolio change with it — in some instances.
For many people, investing is a perfect example of something that is simple, but not easy. Similarly, breaking bad habits in general is not usually a simple thing to do. In fact, terminating bad investment habits tends to take a considerable about of time, attention, and patience. However, those investors who are willing to put in the effort necessary to adapt good habits do tend to feel like their commitment was worth it. Conversely, repeating negative patterns often leads to feelings of frustration and sorrow. Fortunately, though, with enough dedication towards doing things the right way, investors can learn to avoid bad habits and realize great financial success. That it one of the beautiful things about investing, habits can be developed, learned, corrected, and re-learned throughout one’s journey in order to maximize their potential!