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5 financial lessons from the banking mess

Investment booms are dangerous
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The inquiry commission found that during the height of the housing boom, many institutions were so worried about missing out on the mortgage loan boom, they seriously underestimated and in some cases ignored the risks.

Unfortunately, big institutions weren't the only ones to get burned in real estate as the financial crisis unfolded.

In fact, individual investors are even more likely than institutional investors to get burned by investing booms, Grealish says.

"Whatever the trend, it's well-established before they get in, because it takes a while for them to feel comfortable about doing it, so they're always late to the game," he says.

Derek Kennedy, Certified Financial Planner and president of Kennedy Wealth Management in Knoxville, Tenn., says the problem often comes when individual investors ignore risk because they're afraid of missing out on big gains.

"When there's so much discussion about an investment going on out there, it puts a lot of pressure on the average investor, making him feel like, 'I need to participate, or I'm going to miss it,'" Kennedy says.

Montgomery has a good rule of thumb on spotting a potentially dangerous investing fad. "If you see it on TV, it's a fad. It already happened," he says.


 

 

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