Investing: Are you your own worst enemy?
Investors can often be their own worst enemies.
They tend to lag behind the equities index due to emotional decision making, according to a recent white paper issued by Montgomery Investment Management.
It suggests that investors tend to expect high returns from low-risk investments, follow the herd of other investors (even when their decisions are poor), make narrow-minded decisions, diversify incorrectly, and suffer from mass overconfidence.
These behaviours can lead them to deviate from a good strategy.
To help you get a higher return from your investments, Montgomery recommends four ways to curb negative behaviour.
Short-term investing can be reckless if you haven't done your research. Make sure you set clear, realistic long-term investment goals.
Market volatility can cause investors to behave erratically, especially when media sensationalism becomes a factor. Your focus should be on the long term, so keep investing, regardless of market fluctuations.
Don't put all your eggs in one basket
Many investors don't diversify correctly. Spread your risk properly by investing in multiple asset classes.
Quality versus quantity
Avoid being tempted by bargains. Always choose investments with stable management, a strong balance sheet, a history of good dividends and a high return on assets.