The key to being a successful investor is to learn to overcome the emotions of fear and greed and make sound investment decisions based on objective analysis. Fear can lead to financial loss through missing out on opportunities to make a good return and through panic which can result in selling investments at the wrong time. On the other hand, greed can result in financial loss through poor analysis of the risks involved. Good investment decision-making requires objective analysis of potential risks and returns with a balanced view that is neither overly optimistic nor overly pessimistic.
Objectivity starts with determining your goals and objectives and the time frame for achieving them. If you have long term investment goals, don’t get distracted by short term changes in the market. Your strategy may need occasional fine tuning but if it has been well thought out, you shouldn’t need to make major changes.
Review your attitude towards risk and ensure your investment strategy is a good fit. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so you can achieve your goals while taking an acceptable level of risk.
Stay diversified. Markets can change quickly, and moving all your investments into one asset class increases your risk. Evaluate all the options you have. This might mean getting more information from an expert who you trust. Stick to the hard facts such as you would find in an annual report or investment statement and consider the trustworthiness and track record of the people involved.
Confident investors have a long term plan that they stick to; they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.