Tuesday, August 5, 2014
Investing is not much different from driving. Almost any touchy traffic situation can be remedied by making the choice to slow down and avoid whatever is ahead of you. Similarly, if you are someone who freaks out when stocks drop a half-percent in a day, you probably should not be 100% stocks. The trick is to slow down and assess your own situation. Ask yourself a few of these questions:
- If the stock market fell by 20% over the span of a few weeks, would I sell, hold or buy?
- Do I believe that I prefer investments can decline substantially but promise better long-term results?
- Or, do I believe that I prefer investments that do not vary much in value but might have a lower long-term performance result?
If you answered, “sell” to question one and affirmatively to number three, you are a risk-averse investor by nature. If you answered, “buy” and affirmed number two, you are likely more comfortable with a higher risk portfolio. Thus, you can, and should, be invested in a way that matches your ability to manage your own reactions.
See Mitch Tuchman, Your Biggest Investment Risk Is You, Forbes, Aug. 4, 2014.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.