By David S. Chang and infograph from Value Stock Guide
Studies show that the average investor the past 20 years got a 2.4% return whereas the S&P 500 returned 7.7%, bonds averaged 6.1%, and inflation was at 2.6%. In other words, the average investor got a negative return if you account for inflation, and if they had just left it in the market and didn’t do anything, they would have tripled their return!
Why? It is because people generally allow emotions to get in the way they invest. Instead of staying invested for the long-run, they make emotional decisions that hinder growth in their portfolio. According to this infograph, our brain tricks our brain in making bad decisions. By recognizing this, we can prevent this from happening. In short, our brains trick us by:
- Following the herd and crowd (who wants to win the lemming award?)
- Mix-up the definition of cheap and good value
- Throw good money after bad
- Justify our bad choices
- Think the future is more unpredictable
Check out the infograph for good info!