It’s a common cliché among investors that we are our own worst enemies.
While it’s true that some investors shoot themselves in the foot by jumping on a bandwagon that’s headed for a cliff, another cliché to keep in mind is to never put all your real estate investment eggs in one basket.
We tend to let our emotions guide us. Investment bubbles are said, for instance, to be the product of a certain kind of “euphoria” that manages to trump all caution and reason. Millions are lost and depression soon follows.
Such is the nature of mania.
The question then becomes: how do we, as investors, manage these emotions that seem to guide us down blind alleys?
Top investors follow two guiding principles:
Too many investors get caught up in the frenzy of recent strong performance. Take, for instance, the cryptocurrency rush. Millions of unskilled investors rushed to jump on a bandwagon that made major headlines all across the globe. True, many of them got rich.
They got lucky.
There’s nothing necessarily wrong with investing in cryptocurrencies, but rushing into an investment simply because there’s been buzz around it is not likely to yield good results.
Here, the feeling that you’re missing out on something major (fear) is guiding the decision. But you can only know one thing for certain: you should have invested in Bitcoin when it was under $1,000. Once there’s a major buzz around it, it's time to sell to someone who is themselves chasing performance.
Investors that go in without a plan are playing a dangerous game. Investment is not analogous to gambling merely because both involve risk. Risk can be managed intelligently in an investment portfolio. A wise investment plan should address the following:
Top investors successfully manage the highs and lows. They do not make choices based on emotions. They do not chase the latest trends. They are not caught up in investment frenzies. They do not become overconfident. Instead, they build a solid investment foundation from which they can take calculated risks. Interested in how solid your foundation is? Contact one of our professionals today.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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