Emotions and investment are best kept apart. Put them together and you have the ingredients of a disappointing investment outcome, if not a failure. The best investment decision is one which is based on thorough financial analysis using well founded assumptions about the future. There are some investment decisions where emotions are more likely to get in the way.
Buying an investment property.
The character cottage that looks so sweet may come with huge maintenance bills or structural issues that produce negative investment returns. The former family home that is hard to part with may produce lower investment returns than other properties more suited for investment. The property by the beach might make a great retirement home one day, but is it the best way to invest your money in the mean time?
For some people, inherited funds have special significance; they are funds which are seen to be hard-earned, and which must be protected and preserved for future generations. However, the fear of loss can result in a conservative investment strategy which erodes the real value of the investment over time.
Holding on too long
All investments should be reviewed on a regular basis. The fact that you have owned an investment for a long time doesn’t mean you should continue to own it. How does it stack up against alternatives? If it hasn’t performed well, instead of waiting for it to improve, sell and invest in something that is already performing well.
Following the crowd
Inexperienced investors are often swayed by market hype which is driven by either greed or fear. How realistic or objective are your assumptions about future performance? Greed and fear can result in buying when prices are high and selling when prices are low – a great way to lose a lot of money!