The wealthy are certainly not exempt from money worries, and heightened return and dividend ambitions are opening minds to some slightly more unusual investment opportunities this month.
Self-directed investors set themselves a significant challenge, but ironically most take little account of the one thing most likely to scupper their efforts: being human. Self-directed investing may look easy, but the reality is that many investors will make some very painful – and expensive – mistakes. Even more depressingly, many will find themselves making the same investment errors again and again, until at long last they finally call a professional investment manager in.
DIY investors face quite a task, but perhaps the biggest challenge of all is circumventing human nature. The desire for more, the fear of missing out and the unfortunate tendency to compare oneself to others are near-universal traits. Succumbing to these influences as an investor can be disastrous.
As any economist will tell you, markets are not rational; nor are people. Investing is undertaken by human beings who invest at the mercy of their emotions. While people are generally adept at analysing data, they tend to be less good at withstanding the influences of psychology. So, while people may reach similar conclusions from their analyses, what happens next varies wildly. We are at the mercy of a range of psychological factors which can lead even the most disciplined among us to make serious errors of judgement when investing. Along with their investment expertise, professional wealth managers can be objective in a way most lay investors simply can’t.
The psychology of investment contains many separate elements – all of which can lead to poor investment decisions.
Hope springs eternal, usually over logic.
Human beings are sensible and logical beings with the ability to make solid decisions – in most situations. Unfortunately, when it comes to investments things can take a nasty turn due to the negative influences outlined above. Investors hold onto convictions for as long as they can but when the psychological and economic pressures become too great, they jump on the bandwagon headed down Poor Street.
Remember that to be a successful DIY investor one has to be disciplined. If you’ve tried and failed, you’re not alone. In fact, one could say: you’re only human.
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The wealthy are certainly not exempt from money worries, and heightened return and dividend ambitions are opening minds to some slightly more unusual investment opportunities this month.
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