There are two major obstacles to investment success: fear and hope. Let’s explore these one at a time.
Fear is an obstacle when one is stymied to invest, resulting in no action. A true adage is: “buy into fear and sell into greed.” This means that when things seem to be at their worst, it is one of the best times to invest. With the economy still soft right now, the future looks very bright. Now is a great time to invest to enjoy the future recovery.
Hope is an obstacle when an investment that has gone sour is held with the expectation that it will turn around and come back. The investment may very well recover, but over what period of time? An investment that doubles is great, but if it took 20 years to double, it was not a great investment (3.5% average annual total return). We need to ensure that hope does not get in the way of making realistic investment decisions, including cutting losses when appropriate.