5 key tips for self-directed investors
No. 2: Avoid trading on emotions
Many self-directed investors approach stock investing like an infatuated teenager. They fall in love with gold stocks one week, and then gravitate to tech stocks the next, energy stocks the following week, and so on. "Investing on emotion destroys returns. People buy high and sell low," Schatz says. The goal is to do the opposite.
Fear and greed undermine the goals of investors. When fear drove investors to abandon the equity markets during the financial crisis, they missed the opportunity to benefit when the markets eventually rebounded.
Establishing a plan is tricky, but maintaining it through perilous times is doubly difficult. The key to sustaining it is by being clear about what you are trying to accomplish, determining your risk tolerance and setting a time horizon, Schatz says.