4. Investing with Emotion
Investments can get preetttyyyyy emotionally charged.
No one likes being wrong, we all want more (not less. We hold on to unwise investments hoping they’ll turn around. After all, you haven’t taken a real loss until you’ve sold it. Right? – WRONG. That loss was incurred immediately regardless of whether you sell or hold.
We get greedy when we’ve seen spectacular results and think those results will keep growing indefinitely… only to see them crumble shortly after. It’s just human nature.
Emotional investing doesn’t only apply to the stock market; it applies to ALL investments.
Maybe you bought a property thinking you would double your investment but the market doesn’t seem to be responding the way you had hoped…
Holding on to losses is an emotional response and as long as we hold on we can have a glimmer of hope… The problem is, that response is not rational and we inevitably allow our emotions to make decisions for our brain.
HOW TO PREVENT IT:
Set strict loss cutting rules for yourself when you invest. Personally, I set my limit at 7-8% of my investment.
Think of that limit as an insurance premium. If you had gotten fire insurance on your home and your home didn’t burn down… would you be upset? Would you think you made a poor financial decision? Of course not!
Setting a limit on your losses is exactly the same thing. Your investment may turn around and sure that can be frustrating but when (and if) it does, you can jump back on board.
money mistake 5
5. Not investing in yourself
Good money management is not by any means rocket science but much like good manners, we all need to be taught what we should and should not do. Unfortunately, many don’t receive a financial education. That means not knowing what should and should NOT be done when it comes to money.
We all learn calculus in school but nothing about taxes, investing or really anything related to money. Yet, we are legally required to file tax returns each year even though we don’t know the first thing about taxes… when’s the last time that calculus came in handy for ya?
An investment in knowledge pays the best interest.”
– Benjamin Franklin
There is no way of knowing how to speak a new language without learning it. The same applies to money. How should anyone be expected to know how to manage money and grow wealth without learning how to?
HOW TO PREVENT IT:
There’s no doubt that a financial education is the foundation for building wealth.
You know you are financially literate when you can tell the difference between:
- Good debt and bad debt
- Tax payments versus tax incentives
- Good expenses and bad expenses
- The advantages and disadvantages of stocks, bonds, mutual funds, business, real estate, and insurance products, as well as the different legal structures
Final Words
If you’re seeking financial freedom, you need to be financially literate. Here are a few resources to help you get started:
- watch the video where I give you 3 FREE tips to become a confident investor
- read our simple step-by-step guide to investing for beginners
- checkout the Freedom Framework program where I teach you EVERYTHING you need to confidently start investing (you’ll know how to read financial statements, screen stocks, minimize your taxes, pick winning stocks and much much more).
What are some money mistakes you’ve made? How did or can you resolve them?
