We wrote this article to detail how managing your own investment portfolio can sometimes hurt more than help if not managed correctly. We’ll quickly go through some reasons why individual investors, on average, lose money when they invest themselves.
Overconfidence
Every investor believes they are above average and can, therefore out-smart the self-correcting markets. The trait of overconfidence is usually observed in single men. Mainly, because men do not have very many financial obligations, which frees them up to take certain risks when investing to make a positive outcome. The down side is that they usually produce a negative, or neutral return after trading commissions are factored in.
Excessive Trading
Excessive trading does nothing but rack up commissions for the brokerage/advisors that manage your trades. Generally excessive trading result from individual investors getting a “tip” from leading analysts. What they do not realize is that millions of people received the exact same advice. This negatively affects their trading strategy, as everyone moving at once will only serve to raise or lower market prices.
Stubbornness
Investors who are stubborn tend to not realize when they have actually lost out on potential earnings. They tend to embody the last two attributes and are overconfident that their trade is the right one. Not admitting when you’re wrong works in investing just like it works in real life. You lose out on beneficial opportunities by not seeing the big picture.
Conclusion
These are just a few mindsets that may get you into trouble when investing for yourself. Taking advantage of professional advice may limit your margin of error; but it will not completely eliminate losses incurred by the attributes listed above.
Our reference article for this post was written by David K. Randall of Forbes.com.
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