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making investment decisions

Are you a greedy person?

Tough question, isn’t it? After all, most people would rather give their right eye than be thought of as greedy.

The word itself conjures images of greasy-chested car salesmen cheating their customers out of deals, Rolex-wearing rappers lighting cold, hard cash on fire, and Wall Street brokers loading into their Lear jets just to cross the street.

Most people take solace knowing there will always be someone who is greedier than they are. But remember this: Even one iota of greed could cause trouble while you’re making investment decisions.

How Much Has Greed Cost You?

It’s a common fallacy that avarice applies only to the extraordinarily wealthy.

Greed is as much about not wanting to part with your money as it is about earning more money.

Have you chased performance only to have the new investment underperform and the old investment outperform? Caring about how well you are doing “relative” to the other guy leads only to buying high and selling low. Do you know how much that’s cost you?

If you’ve been earning 2% per year, you’re on par with the average investor, according to the latest 2014 release of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) data. Unfortunately, a 2% return has underperformed stocks, bonds, and most other investments during the last 10-30 years. The average investor underperforms her own investments due to her behavior!

Why Are People So Bad at Making Investment Decisions?

Nobody invests with the goal of losing money. But the emotions of fear and greed, along with the herd instinct, have been identified as the main drivers of irrational investment decisions.

Knowing that your emotions often get in the way of making investment decisions doesn’t make those feelings go away. That’s why it’s so important to work with an investment advisor who can help you see the big picture and remind you that capital that’s lost is capital that cannot grow.

How to Make Greed Work for You

“Be fearful when others are greedy, and be greedy when others are fearful.”

Following Warren Buffet’s sage advice has been one of our keys to making investment decisions that provide true value to our clients. Combined with the science of EVA, it’s true a no-brainer.

Want to learn more? Schedule a no-cost, financial check-up with me today. And put October 8 on your calendar—it’s the date of my next educational seminar, Save Your Retirement 2.0: Why Investing is Simple But Not Easy. Look for more details coming soon!