Keep Your Head in the Game: Avoiding Mental Errors When You Invest

Fear of making an investment mistake can cause a retirement investor to postpone decisions. For example, an investor may delay switching out of an investment that has consistently underperformed. While the investor is lingering over the decision, the investment may be losing even more value. If you determine that an investment no longer fits in with your game plan, the sooner you make the substitution, the better.

Assuming a Winning Streak Is Unbreakable

If an investment, or its sector, has performed extremely well over the long term, you may believe it is unbeatable. But even the best teams lose at some point — and even the most consistent investment will sometimes falter. Instead of simply assuming a investment still has a winning record, periodically review its performance. If it experiences a temporary setback but still fits in with your plan, you may want to keep it in your portfolio. But, if a former winner is now on a long term losing streak, it may be time to switch investments.

Freezing under Pressure

In the sports world, a mental error can cost your team the big game. When you are investing, a mental error can put your retirement portfolio at risk. Mistakes often result from letting misconceptions and emotions affect your decisions. Successful investing generally requires logic and reasoning.

Overconfidence

Some people tend to overestimate their investment abilities. The overconfident investor may want to change investments frequently. However, any changes in your investment strategy should be based on careful consideration, not gut feelings. Rash decisions could cost you.