Of course there are good years and bad years for global markets, but in the long term it pays to stay disciplined. Market returns are, in fact, fairly generous.
The problem is, investors rarely receive the market return for two reasons.
First is the cost of investing. The second is you!
That’s because human beings have been conditioned to act on impulse. Its an instinct that often serves us well, but when it comes to investing, human emotions do us far more harm than good.
Market soars and greed kicks in as we rush to buy.
When they plummet, fear takes over and we’re overwhelmed by an urge to sell. More often than not, we buy and sell at just the wrong time. In reality, we would be much better off my keeping a cool head and almost invariably leaving our portfolios exactly as they are.
Academics have identified several behavioural biases that investors are prone to.
For example, we like to follow the herd, we give far too much weight to recent information, and we tend to overestimate our investment skill.
It’s not as easy as it sounds. You might well need the help of an adviser.
But its important to identity your particular biases and be aware of them to ignore the temptation to act irrationally.
The fifth step to successful investing then, is to be disciplined.