Updated: Dec 19, 2018
There are people out there (maybe you) who obsessively watch their investment accounts everyday. Feeling great when the balance goes up and feeling lousy when the value goes down. Even though it might seem like the prudent thing to do to keep track of your investments (which it is), watching the value everyday is the road that leads directly to losing your mind.
Here are 4 tips to deal with your bad investing habits (we all have them so don't think this doesn't apply to you.)
Bad investing habit #1: Obsessing over your account balance.
Do yourself a favor and only check your 401k, IRA or other investment accounts a maximum of once a week, preferably once a month. There are only 2 reasons to check your retirement accounts. First, to update or rebalance your investments and second, to review holdings to make sure they align with your goals.
The main work in setting up a retirement account is choosing investments that fit your preferences, risk tolerance and allocation to various asset classes. There are endless investment styles and methods, but at the end of the day, having the right foundation is the most important part of any investment strategy. Get it right the first time and you don't have to fiddle with it.
Do you want a balanced portfolio of 50% stocks and 50% bonds? There are phenomenal mutual funds and index funds that will get you there. The Benjamin Graham/Warren Buffet model of value investing will take a bit more work in researching stocks and learning about financial ratios, but the rewards can be bigger as well. Put more work into refining your investment style rather than obsessing over your account balance.
Bad investing habit #2: Not ever checking your investment account
The opposite end of the spectrum is leaving your retirement account unchecked for months, even years at a time. This is more common than you might think. Workers tend to think their employer is taking care of their retirement plan and that everything will work out in the end. This couldn't be further from the truth. Your employer doesn't actually care about your retirement plan and investments. They offer the plan and investment options but most of the time, that's where it ends. The rest is up to you.
Get to know what your plan offers, in terms of contribution matches, profit sharing, investment options and historical rates of return. A little research can go a long way and set you up for gains in the hundreds of thousands over time, versus hundreds or less in gains.
Bad investing habit #3: Buying gold
Your parents probably bought gold, and their parents probably bought gold. It's the hedge of all hedges, right? When the apocalypse comes, gold will be the only valuable trading currency left and so we should plan on that. Right? We'll make a killing in gold when it goes to $100,000 per ounce. Right?
Wrong. Gold is is a fear-based investment and doesn't come close to helping you plan and invest for retirement. Gold doesn't pay dividends. Gold doesn't pay interest. Gold doesn't keep up with inflation. Gold doesn't....etc. etc.
Don't believe the hype. Gold does goes up and down in value like other investments, but the average investor should stay focused on investing in high quality companies and industries that are growing and reward shareholders with dividends and interest payments.
Bad investing habit #4: Selling at the bottom
You've heard this before. Investors who sold at the bottom of the recession in 2008/2009 lost their shirts and never recovered. It's true, the stock market has gain exponentially since the recession and has been one of the best ways to grow wealth and build a retirement plan. But this habit of selling at the bottom is also seen when investors buy solid companies with good intentions, only to sell when the share price goes down (because of an earnings miss, analyst downgrade, etc).
Stocks go up and down everyday. Unless there's a fundamental flaw in the company (happens), a change in industry outlook, or other major shakeup in the investment, it's usually a good idea to invest for the long-term and focus on value and quality.
There's no get-rich-scheme that is legit in the stock market. The tried and true way of building wealth is to make a plan, stick with it, and buy companies that you know and understand for the long-term. Leave the trading to the professionals that have super speed computers and millions or billions of dollars to work with.
The bottom line is to accept that we as investors all of bad habits when it comes to investing. But, we can learn and do better. Next time, we can remember to not check our account obsessively just because we can. We will remember to not be complacent with investments either and build a solid foundation and plan that doesn't need constant monitoring. We will not buy into fear-based investments like gold. And we will be long-term investors who commit to our retirement plan and not deviate just because of some short-term news cycle.
Good luck out there! Be fearless and diligent!