As teenagers, looking for laughs, my brother and I would sometimes tape the fishing line of dollars, put it where people would see it and hide it with a fishing rod in his hand. As the only unsuspecting person to achieve the dollar, we will draw a line and move a few feet of dollars. If we were lucky, the person would think it was just the wind that moved the account and they would step in and make it again only to be met as they are moving out of reach.
This common trick is not too far from what most investors do, because they continually chase past performance, only to find their investments going in the opposite direction than they had expected. This is especially true when the market is heating up or cooling down. How many times have you jumped into the “hot” investments, because a friend insisted that he murders only to find it cool down immediately after you receive?Many investors try to implement a long-term strategy in response to short-term trends. This is often the futility of use. In its ongoing efforts, they end up making mistake years ago when buying investment of its peak price and then sell it low.
In order to avoid some common mistakes investors make, there are some things to keep in mind:
“Past performance is no guarantee of future results.” This phrase, which you can see many objects of trade and investment statements. Seriously. In most cases, I saw someone looking at a chart of activities in particular stock or mutual fund within a certain period of time and try to make the argument that because he has reached a certain price in the past then it’s only a matter of time until it reaches that price again in the future. This may sound logical, but this approach is filled with potential pitfalls. KBC Lucky Draw
For example, in 2007, the Emerging Markets Equity was one of the most effective among asset classes. A year later, however Emerging Markets Equity was one of the weakest among asset classes. If you bought shares in emerging markets, because the historical rate of return you could find yourself crying your pillow, because after the loss.
Periodically rebalance its portfolio.
I have an automatic sprinkler system in my house. I’ve never found an easy program and it seems to me that every time you fight, when the season changes and I need to adjust it to fit the season and my lawn needs watering. Usually, it’s just after my lawn is watered or severely under overwatered that I stay a period of adjustment to determine where it should be. If I did not do this regularly, my lawn would suffer the consequences. If I adjust it when I have my lawn to grow and be much healthier than it is now.
The portfolio is not much different in that it is important to periodically adjust and balance to ensure your investments properly weighted base their asset allocation strategy. There are three main asset classes – equity, fixed income, cash and cash equivalents. Each of these asset classes have their own risks and returns. The portfolio may include each of these asset classes according to your strategy.Over time, the market value of the percentage of each of these asset classes in your portfolio gain or loss, based on performance and you can find more of their portfolio or underweighted in one or more of these areas. It is now to balance your portfolio, your portfolio is not given to more risk than you originally expected.
Focus on things you can control.
Hosted by financial radio show, we get calls daily from people concerned about the current administration or on Wall Street panicked. It makes great conversation, but when it comes right down to it, we can only effect those things in our control.Often people worry and fret about tax law changes that may or may not be as long as they completely ignore the current tax laws, so that they can use for its own benefit, for example, contribute to the tax qualified account. They complain and argue about how the recent market turmoil on the economy, yet they forget that they did not contribute to their retirement a few years ago.
So while it may be interesting debate the hottest stock or the economic impact of the current administration, do not forget that the decisions you make and manage their own financial house will have the greatest impact on your financial well-being. Do not spend time chasing the dollar to remain just out of reach.