Self-Directed Investing – Common Mistakes

This interesting information courtesy of Fisher Investments;

1. Underestimating time horizon for your assets – How long do you think you will live? How about your spouse? Most people are far too conservative in estimating the length of their lives, and that can be a problem when planning your future.

2. Misaligning investment objectives and portfolio strategy – Aligning your portfolio strategy with your objectives is a critical factor in determining long-term investing success. This may sound obvious, but many investors employ strategies that work against their objectives.

3. Confusing income needs with cash flow needs – Income and cash flow are not the same thing, although many investors think they are. In fact, the two different concepts and distinctions between them are extremely important.

4. Overlooking unintended risk factors – Managing a diversified portfolio of assets can be fraught with hidden risks many investors aren’t aware of. Too often, we find that portfolios are over-exposed to certain risk factors that were never recognized.

5. Ignoring foreign securities markets – The US isn’t the only country worth investing in. In fact, it only accounts for about half of the value of world equities in terms of market capitalization. As a result of globalization, there are a great number of innovative companies and investing opportunities available to take advantage.

6. Forgetting the fundamental importance of supply and demand – The fundamentals of supply and demand of securities are easy to overlook. Analysts and pundits cite an endless list of theories about what mechanisms drive stock prices. But the simple fact remains: supply and demand of securities will always be the fundamental driver of share prices.

7. Making investment bets based only on widely known information – What sources of information do you use when considering an investment? With the possible exception of the “hot tip” that you pick up at a dinner party, your information probably comes from sources that are widely available.

8. Experiencing overconfidence in your investing skills – When investing your personal assets, it’s natural to experience a lot of emotion as you watch the ups and downs of the markets each day. After all, it’s your financial future you’re dealing with. But, for that reason, a slew of cognitive biases come into play, clouding people’s judgment and hampering their ability to make rational, impartial decisions.

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