As investors, we are wired to make bad decisions, especially in times of bother. This can come from marriage, a job loss, a baby or a divorce. All these things lead to rash decisions.
We fail because of where we get information. From family or parents- people with zero training and not able to admit mistakes.
Failure also comes from recency bias. People think recent events dictate all events to come, like interest rates will never rise again or real estate values will never fall.
Most people do not know how they are taxed or how to minimize them. Interest, dividends, rental income, capital gains and self-employment income are all taxed differently.
We fail because we think short-term. Yearly performance is the cowboy preoccupation, instead of achieving life goals – a house, schooling kids or retiring securely. We exaggerate current events, believing we live in a time of unusual turmoil or unprecedented conditions. But we don’t. It’s not different this time.
Investing is not gambling. Genius isn’t measured in 12-month performance. Reaching for outsized performance involves unwarranted risk. Most people fail when they base decisions on feelings, perceptions and wants. We’ve allowed money to become so personal and defining that husbands and wives will share a bed and offspring and yet not an investment account. Despite being an economic unit, they work at utter cross-purposes.
Wealth’s greatest gift is to enhance time. Erase stress. Grant security. Let you savour each day.
That is the goal.