If you're having trouble sticking to long-term financial goals, you're not alone. Even the wealthy are susceptible to emotions that derail overall returns. A report by Barclays Wealth finds that 41 percent of the 2,000 wealthy investors surveyed say they could use some help controlling impulses that are counterproductive to their financial goals.
The three harmful investment behaviors that respondents report are:
- Buying high and selling low. Investors panic when the market drops and pull their money out. Then, when they feel more comfortable as it begins to climb, they reinvest. In the meantime, they're missing out on growth opportunities. Better to do as Warren Buffett does by researching an investment carefully and then sticking to it. He's reportedly said his favorite holding period for stocks is "forever."
- Doing too much with too little. Investors tend to sit on large sums of cash earning a paltry return, but with the small sums they are willing to invest, they trade too often and make risky bets. Better to do less with more.
- Focusing too much on the short term. This is easy to do if you watch the market regularly. Its volatility will keep anyone up at night. Better to keep your eye on the long term prize and not worry too much about the short term. How to accomplish that? Sock long-term investments into more illiquid assets like stocks so they'll be difficult to access quickly. If you need short-term money, stash it in safer, more liquid investments such as cash and CDs.
Do you see a trend in these behaviors? All have to do with letting emotion get the better of you and thinking that any activity is better than doing nothing. Sometimes it pays to take a hands-off approach if you want to build wealth over the long term.
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