Financial malpractice could torpedo your investment results
July 30, 2015
Life is all about trying to avoid mistakes. Investing is no different.
Financial mistakes can hurt your ability to achieve your financial goals. Financial goals include reducing and eliminating personal debt, helping your children with the financial burden of a post-secondary education, and preparing for retirement.
Financial goals are why you invest. These are the things that are most important to you. Making mistakes does not just cost you money; it costs you the ability to achieve your life goals.
Conducting your financial business in a manner that is prone to mistakes can be considered financial malpractice. Avoid mistakes and success will follow.
If your investment advisor calls with a hot tip ask him to call back not with a hot tip but on a successful strategy to help avoid common mistakes.
Hot tips come and go and have no history of consistently making a profit. Avoiding mistakes is the key to success.
There is enough risk in the investment world without adding to that risk by being prone to making mistakes. Your key to success is hinged on your ability to avoid these mistakes.
Our recommendation is to learn how to recognize a potential mistake in order to avoid making it. That starts with attempting to avoid the human characteristics of investing because of fear and greed.
Resist the temptation to chase a “hot” investment. Security selection and market timing have not proved to be successful strategies for individual or professional investors.
We recommend you not attempt active trading in the blind ambition that you will be successful. The evidence of investing is not on your side and chances are you will not be successful.
In other words, a strategy of buying and selling does not work. Do not do it because in our opinion it is one of the most common mistakes investors make.
Investment losses that often result from this type of strategy are a significant detour away from your end goal. These errors can be costly and very difficult to recover from.
The arithmetic of investing is very cruel when mistakes are made. If you invested $100, and that investment declined by 50 percent, the end value of your investment would be $50.
In order to recover that loss and have the value of your investment return to $100 you now have to have a 100-per-cent return to make up for your previous 50-per-cent loss. The numbers are against you so try and avoid mistakes at all cost.
Our recommendation is to have an investment portfolio that is well-diversified, tax-efficient and cost-effective.
Your financial objectives should be something that you can achieve. Be practical about how you establish those objectives and then monitor your progress towards reaching your goals at least on an annual basis.
Try and resist the temptation to invest in ways that have not been successful for others in the past. Making the simple and common mistakes that others have made is nothing more than financial malpractice.