The Investors’ Dilemma: Understand the Psych

Have you ever worried about getting high enough returns on investments? Maintaining your standard of living at retirement? Affording high quality education for your children? Have you ever worried about the next market crash, missing out on the latest, greatest stock tip? Making sense of the all the information available or someone else having a better portfolio than you? Have you ever worried about not having enough money to care for loved one, getting bad advice and, worse yet, paying for it? Have you ever bought an investment when it was doing really well, when it was high, and later sold it because of bad performance at a low price? If you can answer yes to any of these questions, then you are in the right place.

Investing is usually done in an effort to have money to accomplish life goals and realize dreams. Knowing that we have money for the future can offer a sense of peace in the present. However, instead of bringing peace of mind, investment decisions are often complex and confusing, leading to distress, worry, and anxiety.

The Investors’ Dilemma is a cycle that explains why many investment decisions are driven by emotional and psychological biases that may be inconsistent with an investor’s long-term goals. On the one hand, investors want assets to grow to the point where enough wealth has been accumulated to meet personal financial goals. Yet, for most, this will only happen by investing money prudently. Therefore, investors need to make decisions and select strategies to maximize investments year after year. Unfortunately, the actions investors frequently take are likely to be self-defeating. Check back next week where we will review the seven parts of The Investors’s Dilemma.