If you are watching your retirement account and trying to decide what to do, you need to pay attention to psychology of groups of people. People have a great tendency to do what others are doing.
Unfortunately this doesn't work well with investments. Every market that goes up sooner or later comes down and every market that goes down sooner or later goes up.
Many people put money in when markets are at the top or bottom and when it turns (which can happen quickly) they lose a lot of money. Instead of letting it ride and wait for a turn around they pull out to prevent more loses and so they lose out when the market turns.
This is why guys like Warren Buffet invest in stable companies for the long term. And as Warren says the number one rule of investing is don't lose money.
In particular the worst types of investors tend to be doctors, lawyers and other professionals who think there expertise in one are makes them good investors.
Our Financial advisers tell us to to spend wastefully and invest foolishly. many people don't buy when the markets have bottomed and the rewards can be high as they are afraid. They feel better when the markets are shooting up. However this is the riskiest time as sooner or later they fall.
How did the US Economy look in 2007 - great. As it plunged people lost a lot of money because they pulled out to avoid losses and then the markets went to all time highs.
The best long-term investors, like Warren Buffett, think the opposite of most investors, and have indicators to measure the herd’s fatal instincts.
What is the takeaway from this. If you are investing on your own take great care to look at market cycles and and don't depend on yourself to figure things out.
Look at what great investors like Ray Dalio and Warren Buffet are doing and emulate them or get a good Registered Investment Adviser (in the USA) and there are equivalents in most countries. These are people who get paid a set fee to advise you and are not getting commissions, and kickbacks on the products they sell.
I will speak more about these people in the next Blog.
Please send in comments and questions
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