AFA Blog

We Use A Checklist When We Fly; Why Not Use A Mental Checklist When You Invest?

We Use A Checklist When We Fly;  Why Not Use A Mental Checklist When You Invest?
Reliable Information vs. instinct.What follows is a broad mental checklist all investors can use to increase their odds of a successful investment experience during a lifetime of “decisions”.   The choices we make with our assets can be strongly influenced by multiple factors, many of them emotional, which can sabotage even the smartest investors.
 
(1)  Deal of the day
Steer clear of the next “big thing”.  You’ve heard the whispers, the “next greatest thing” is out there – like bitcoin or a hot IPO for example -- and you can get on board, but only if you hurry. Sound familiar?  The prospect of being on the ground floor of the next big thing can be thrilling. But while great new opportunities arise once in a while, those “hot new investments” can often go south quickly. 
Jumping on board without all the information can be a bit like gambling in Vegas: the payoff could be huge, but so could the loss. A shrewd investor will turn away from spur-of-the-moment trends and seek out solid, proven investments with reasonable and reliable returns.
 
(2)  Risky business
Many investors claim not to be risk-takers, but that isn’t the case in real life. Most proficient investors aren’t reluctant to take a risk, they’re reluctant to accept a loss. Yes, there’s a difference. The first step is to establish what constitutes an acceptable risk by determining what you’re willing to lose. The second step is to always bear in mind the potential loss vs. gain. 
If taking a risk could help you retire five years sooner, would you take it? But what if the loss involved working an extra ten years before retiring?  Is it still a good risk? By weighing both the potential gain and the potential loss, (while keeping your goals in mind), you can assess what constitutes an acceptable risk. Sometimes the right answer lies somewhere in the middle.
 
(3)  You can’t always know what’s coming
Some investors attempt to predict the future based on the past. As we all know, just because a stock rose yesterday, doesn’t mean it will rise again today. We know this, but often we “shrug off” this knowledge in favor of hunches. Instead of stock picking, you can maintain a disciplined approach that uses diversified asset allocation with the potential for reasonable returns.
 
(4)  The gut-driven investor
Some investors tend to pull out of investments the moment they lose money.  While they may do some research, they are ultimately acting on impulse. This method of investing can result in huge losses or continuously selling at exactly the wrong times and then buying high – well after a recovery has begun
 
(5)  Eliminating emotion
Many investors “stir up” their investments when major events happen, including world events, reaction to nightly news, marriages, divorces, or deaths.  These issues can cause second-guessing the effectiveness of their long-term plans. It’s a case of action-reaction: they invest in response to short-term issues instead of their long-term financial goals. 
 
The more often this happens, the more scattered their “financial strategy” becomes. If the financial changes they make are ill-timed or dramatic, it can lead to unnecessary stress. Many times, there is no need to fix what isn’t broken or turn away from what they’ve done right. 
 
By enlisting the assistance of a qualified financial professional -- relying on their experience, perspective and expertise -- you can be sure the investment decisions are based on real data/facts, and not emotion.  Choices and decisions are made to fit/enhance your long-term objectives rather than your personal, changing emotions or short-term needs.
 
Please call us at (770) 977-2434, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or visit our website at http://afainvestments.com/
 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
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