The reality of investing your hard earned money
One thing I’ve learnt over almost three decades of trading the stock market, is that when individuals invest their hard-earned money, they never expect to lose.
On an intellectual level they know it is possible to lose money, they just don’t think it will happen to them.
This false reality unfortunately means investors tend to make emotional decisions when investing their money, which leads to mistakes when managing their portfolio.
When you invest with a mindset of not losing, you expose yourself to higher risks, which in turn results in one of two issues. The first is you achieve poor portfolio returns. Secondly, it increases your stress levels, as you watch your stocks fall in price and your portfolio devalue. Indeed, watching your investments fall without taking the necessary action to exit is the difference between a comfortable, early retirement and working until pension age or, in some cases, longer.
Over the years, I have reviewed many portfolios and the one thing that remains constant is that the majority of investors are ignorant about the reality of what investing their hard-earned money really means. A motto that I continually drum into my clients when it comes to profitable investing is what you do not lose determines how much you make.
While this is overly simplistic, once you learn the rules about how to find good investments and you are able to manage them with the knowledge and confidence of knowing when to exit, your risk and stress levels will decrease and you will profit more.
While it is inevitable that some stocks will fall in value after you purchase them, the reality is that to achieve better than average returns with your portfolio, you need to concentrate on assets that are rising in value and increasing your wealth, and sell assets that are falling away.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au