- Mind wants you to be your comfort zone.
Solution: consult a financial advisor and follow the rule of asset allocation comprising equity, debt, real estate and gold according to your age and your goals.
- Mind remembers pains:
- Effect: You would more likely to avoid investing again in the same asset class or instrument in which you had incurred loss earlier.
Solution: Investments follows cycles and the past performance have no bearing on future outcomes. So, trust the experts not your mind and invest in the instruments which are essential for your finances.
- Mind justifies the actions taken:
Solution: Do research on the instruments you invested. Check whether they are in sync with timeframe of your goals.
- Mind become overconfident once something goes successfully.
Solution: Don’t wait to be reactive, realising your mistakes, for the losses which deflates your confidence. Be proactive, open to take expert advises and study on investing before entering it.
- Mind seeks instant gratification.
Solution: Automate investments and lock them for long term. To avoid early exit due to fear, stop frequent checking of your investments.
- Mind likes speed.
Solution: Do not make investment on tight deadlines. Stick to asset allocation based on age, you risk appetite and goal timeframe.
- Mind remembers most recent events:
Solution: Instead of going with the recent months returns spend time in studying the consistency of the performance over the past years as well as its future prospects.
- Mind distorts information in aligns with the existing beliefs and deletes information that does not align.
Solution: while consulting an expert do not seek answer only related to your self beliefs. Seek and consider contrary views to arrive at right decisions.
Learn and be wise money-wise. Happy investing.
~Kishore S Hegde , Chartered Financial Analyst (ICFAI)