Thou shalt not chase performance.
Want to improve your investment results? The deadly sins below are not only among the most serious financial transgressions, but also they’re among the most common. I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio.
3. Lust: Being addicted to financial pornography. Financial pornography—think CNBC and Fox Business—may be entertaining, but it has no lasting value and is actually harmful to your financial health by promoting short-termism.4. Envy: Chasing performance. This sin trips up more investors than any other. It ultimately leads to the cardinal sin of “buying high and selling low.”
Antidote: Patience and a knowledge of financial history. While history doesn’t necessarily repeat, it does rhyme. What history has shown time and again is that markets mean revert—that is, sharp declines are typically followed by rebounds. Antidote: Overcome your fear of stocks by understanding their historical returns. History suggests that, while there’s a 46% chance that the S&P 500 SPX, +0.19% will be down on any given day and a 27% chance you’ll lose money in any given year, the odds of losing fall to 5% over 10-year stretches and 0% over 20-year holding periods.
10. Negligence: Mixing investing and insurance through variable annuities, equity-indexed annuities and cash-value life insurance. Ever read the entire prospectus for an annuity? I didn’t think so.
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