Hands down the best chance most people have at becoming rich is to invest
wisely over time and let the power of compound interest do most of the work
while the strategy is simple it certainly isn't easy especially when you
make critical investing errors that will not only frustrate you but will remove
any chance you have at achieving significant investing success luckily
boss in this video I will share with you the number one investing mistake you can
make and how to fix it and if you're new to the channel then hit the Subscribe
button below for more life-changing content when it comes to investing many
people believe that in order to succeed you must obtain inside information or
get lucky and invest in a stock that suddenly skyrockets in value while these
two different events can help you make money in the short term there is one
aspect of investing that needs to be understood and employed if you want to
use investing to maximize your personal wealth most people would assume this
would require you to be a master in stock analysis or have connections with
those who are but the number one key to investing such success comes not in your
technical abilities but in your behavior instead in fact a 2018 study published
in the Journal of financial planning found that investors who use a behavior
modified approach to investing they removed emotion saw returns up to 23
percent higher over 10 years that 23 return could mean the difference between
retiring at age 55 or age 70 and achieving these increased returns comes
down to understanding and controlling your emotions and in this video I will
go over three emotions that you need to control in order to achieve investing
success and strategies to do just that emotion number one fear there's no
doubting the fact that our money is something we hold near and dear and when
we put this money at risk which is always the case when investing fear
comes into play unfortunately the sphere can dramatically impact our investing
success consider a 2018 analysis which found that when the S P 500 lost 4.38
percent the average investor lost more than double that at 9.42 they lost money
because they panicked sold when the market declined for another illustration
look at the best buying opportunity in recent memory the March flows of 2009
that trough offered investors an incredible opportunity to buy shares of
large household names for pennies on the dollar companies like Bank of America
General Electric and Wells Fargo were all trading in these single digits many
of these companies went on to grow 500 or more over the following Years yet
fear pushed many middle-class workers out of stocks entirely nearly two-thirds
or 63 percent of Americans own stocks in some form including employer-sponsored
plans like 401ks or simple IRAs in the mid-2000s according to a 2019 Gallup
poll after the Great Recession the number dropped to roughly half of
Americans those who shied away from stocks missed out on the longest bull
market in history from 2009 to 2020. they let their fear get in the way of
Building Wealth in contrast the wealthy continued participating in the stock
market the wealthy thing differently about money and they leave their money
invested long term rather than Panic selling it therefore fear can not only
make you sell low but it can also hinder the gains you can receive for years to
come emotion number two greed the same logic applies to the buying side of the
equation too many would-be investors sit on the sidelines in the early stages of
Market upturns out of fear then start seeing dollar signs as they watch the
stock market climb after waiting for a track record of gross before they feel
comfortable investing suddenly they see those gains and want in on it but by the
time they witness enough growth to feel Green With Envy and greed much of the
bull market may have already passed in fact the best weeks and months of a
recovery tend to be the first ones in the first month after the S P 500 is low
in October 2002 it Rose 15.1 percent after the S P 500 is low in March 2009
it leaped 26 point six percent over the next month investors who waited for
greed to drive them into the market missed out on much of the recovery in
good markets and bad the average investor underperforms the market itself
in the 20 years from 1996 to 2015 the S P 500 generated an annualized return of
9.85 percent yet studies found that the average investor earned roughly half
that 5.19 once again being the master of your
emotions proves to be important when tried to maximize your market returns
emotion number three impatience have you ever sold an investment because you felt
frustrated by its performance only to see it surge after you did anger and
frustration can make you dump fundamentally sound investments just
because you get tired of waiting for them to show progress yet overreacting
in frustration and impatience often robs you of your best investments and ideas
granted sometimes new information comes to light that changes your fundamental
analysis by all means stay flexible and don't
clinged about Investments out of stubbornness but if the fundamentals for
an investment remain sound don't dump it just because other investors haven't
noticed it yet always remain calm in investing in business as long as your
underlying thesis for your investment hasn't changed neither should your
emotions now you're probably thinking that it's easier said than done to
control these types of emotions especially when there are thousands of
dollars on the line and quite frankly I agree I have fallen victim to each of
these emotions in my own investing journey and it wasn't until I learned
ways to cope with these emotions that I started to see tangible progress in my
portfolio here are five strategies that ensured I stayed composed when embarking
on my own investing Journey strategy number one using dollar cost averaging
smart people love opportunities to show off how smart they are unfortunately
when it comes to investing that means trying to time the market and let me
tell you from personal experience that it doesn't work you see no financial
model can predict irrational human behavior which is why no one can ever
truly know which direction the market will turn from one moment to the next
besides tomorrow's highs and lows may be still less attractive than today's
pricing Market timers often end up waiting for an imagined better moment
than ever comes instead invest the same amount into the same Investments at the
same regular interval it's called dollar cost averaging it's boring and it works
strategy number two automate your Investments another way to remove the
emotional element of investing is to rely upon Robo advisors like human
investment advisors there are pros and cons to Robo advisors but they do
several things really well including proposing Investments and then
automating them for you based on your personal details goals and risk
tolerance Robo advisors propose a series of Investments appropriate for people
like you you can then set up automated recurring transactions to your Robo
advisor account and they handle buying managing and rebalancing your
Investments for you from there this means less emotional involvement and
greater chances that you will succeed in your investing endeavors strategy number
three diversify your portfolio you've heard the old proverb about not putting
all your eggs in one basket to illustrate that financially I like the
Enron example imagine that you invested a hundred percent of your life savings
in Enron back in the early 2000s to use the technical term you'd be completely
screwed instead spread your money among many different asset classes and
different assets within each asset class in stocks that means buying thousands of
different stocks in multiple continents and regions in different sectors with
different market caps you can do it simply and cheaply with index funds I
also like real estate particularly for immediate passive income and tax
advantages you could buy rental properties directly of course but most
people don't have the interest in learning the skills needed to do so
luckily you have plenty of options to invest in real estate indirectly instead
through companies like fundrise the percentage you aim to invest in each
asset class in each type of asset within each class is called your asset location
it doesn't remain the same over time your ideal asset allocation changes as
you get closer to retirement but your asset allocation also drifts as some of
your Investments outperform others that means you need a mechanism for reverting
to your target asset allocation known as rebalancing your portfolio
strategy number four automatically rebalancing your portfolio given the
volatile nature of all financial instruments there will always be a need
to manage your assets and one way to do this is through rebalancing if you're
unfamiliar with rebalancing it simply means adjusting your Holdings to match
your target investment strategy for example imagine you invest 80 in stocks
and twenty percent in Bonds in your portfolio over the next six months your
stocks perform well will your bonds perform poorly resulting in your
portfolio drifting to 85 stocks and 15 bonds to return your portfolio to your
target asset allocation you must sell off some of your stocks and use the
money to buy more bonds you can do this manually of course or you can let a robo
advisor or human investment advisor handle it for you most Robo advisors
offer automated rebalancing as a baseline feature and rebalancing is
essential not only does it help you keep your portfolio appropriate to your
personal needs but it also boosts your returns that eliminates emotion from
your investing rebalancing forces you to sell high and buy low and when you
automate it you leave no room for emotional second guessing strategy
number five protect your retirement while you're working full-time in
investing money regularly Market downturns don't impact your daily life
if anything they help you they present an opportunity to buy up assets while
they're on sale you get to buy low and you can ride out the downturn without
selling a single asset retirees don't have that luxury most retirees must
gradually sell off assets in their nest egg to pay their monthly expenses the
idea is that they slowly draw down their nest egg in retirement without running
out of money before they die in retirement planning the speed at which
you can draw down your assets is called a safe withdrawal rate if you've heard
of the four percent rule then you know the most famous example of a safe
withdrawal rate but in Market downturns retirees assets suddenly become worth
far less money if you started with a million dollar nest egg and plan to
withdraw 4 percent per year or forty thousand dollars then the market
collapses by thirty percent and you now only have seven hundred thousand dollars
withdrawing forty thousand dollars of that seven hundred thousand dollars
means depleting Your Nest Egg far faster than you planned Market crashes early in
retirement present a particular problem for retirees known as sequence of
returns risk it turns out that a market crash early in retirement causes far
more damage than an equivalent market crash later in your retirement the more
time your portfolio has to build in a bull market after retiring the more
margin and buffer against losses it'll build up older adults need to be
especially careful to avoid emotion in their investing as they approach
retirement getting spooked and converting all their money to bonds can
leave them without sufficient returns to keep their nest egg going for the rest
of their lives conversely getting greedy and leaving all their money in stocks
leaves them vulnerable to a stock market crash as a rule of thumb subtract your
age from either 100 110 or 120 depending on on your risk tolerance the resulting
figure is a percentage of your portfolio you should leave in stocks if you're 60
and subtract your H from 110 that means you should have 50 of your portfolio in
stocks as long as you control your emotions and Trust the history of the
market you will be able to write out downturns even in your later years hey
it looks like YouTube thinks this next video is the one that will change your
financial life forever give it a watch end let's see if they're right