The 6 Biggest Mistakes Ordinary Investors Make #infographic

 

The 6 Biggest Mistakes Ordinary Investors Make #infographic

We are also our own greatest enemies in many aspects of life. The personal finance domain is no different.

What is the greatest obstacle to the achievement of financial independence?

It's your own head, unfortunately.

You can save, minimize fees and taxation, and even diversify your assets in all the right stuff. But it's always likely to fall prey to financial self-sabotage if you struggle to master your own psychology.

Design of The Brain's

The infographic of today is by Tony Robbins, and it incorporates statistics and talking points from his # 1 Best Selling Book Unshakeable: Your Playbook on Financial Freedom, now available on paperback.

The graph is based on a chapter in the book that shows the human brain 's main psychological shortcomings. It points out that for millions of years, these fallible survival impulses have been hardwired into our brains and as we attempt to make sound financial choices, they become very troublesome.

In order to conquer these instincts, investors need to follow simple structures, guidelines and processes that are in our best long-term interest to ensure the choices about money we make.

Conflating current developments with patterns underway

One of the most common investment errors, and risky, is to assume that the latest pattern of the day will continue.

This is known as recency bias in psychology, or focusing more weight on current developments when determining the likelihood of anything occurring in the future.

For instance, an investor may assume that it would still do well in the future because a stock has done well recently. She then buys more, purchasing more easily at a high point in the inventory.

Solution: Re-equilibrium

Our recollections are short, but what can we do?

The best way to prevent this impulsive and flawed decision-making is to agree in advance to fund proportions (i.e. 60 percent stocks, 40 percent bonds) and then periodically re-balance them.

Quite competitive and motivated individuals also believe they are just as good at engaging in other facets of their lives as they are. This overconfidence, though, is a typical cognitive bias: we continually overestimate our talents, our knowledge, and our expectations for the future.

Solution: Get real and become honest

You owe yourself an immense advantage by admitting that you have no unique advantage, and you can defeat overconfident investors who delude themselves into thinking they will outperform.

In the quest to create financial capital, it's tempting to go for major wins. Yet reaching for the fences often entails more strikeouts, often from which it can be hard to rebound.

The Solution: Long-term thinking

Achieving safe long-term gains that are compounded over time is the only way to win the investment game. Don't get overwhelmed by Wall Street's short-term noise, and re-orient your plan over the long term to create wealth.

The 6 Biggest Mistakes Ordinary Investors Make #infographic

infographic by: www.visualcapitalist.com


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