Becoming a Better Investor

When asked how people can improve their investment experience, our first response is to focus on the things they can control and not on the things over which they have zero control (i.e., the performance of the overall market or any single asset). So, what are the things investors can and should control? They are costs, diversification, and their own behavior.

Regarding behavior, the primary pitfall cited by experts is overconfidence. The most basic example is the belief that you know something that the rest of the market has somehow missed. Overconfidence underlies the potentially harmful actions of stock-picking, market-timing, and manager-chasing.

Knowing that we should do our utmost to avoid overconfidence, what positive behavior should we emphasize to become better investors? Our answer to that is self-discipline, the ability to stay invested after the market has significantly dropped as well as the ability to refrain from getting caught up in a mania like house-flipping in 2007 or dot-com stocks in 1999. Going further, disciplined investors are willing to sell down assets that have experienced gains in order to increase their positions in assets whose prices have declined. Naturally, this is a great deal easier said than done.

At Clarity, we believe that by removing themselves from immediate buy and sell decisions, investors will maintain the discipline needed to meet their financial goals. One way of doing this is to hire a fiduciary advisor who will always act objectively in their best interests . To us, this means keeping costs low (including the cost of the advisor!) while achieving maximal diversification. If you would like to learn more about how Clarity can help you create and implement a financial plan incorporating a disciplined approach to investing, please call us at 800-345-4635 or email us at info@clarityca.com.