Do you feel desperate right now?  If so, its understandable.   Its frightening out there.

The market.  The media.  Your investment statements.

Everywhere you turn you see negative messages and they are scary.  Its no surprise that you might feel desperate at times.

The problem is that desperate people do desperate things and that can cost you – big time.

Let me give you an example.

Anderson, like many other people, suffered painful investment losses last year.  He invested “conservatively” and still lost over 20% in 2008.  He wanted to make up for those losses as quickly as possible.  He invested 40% of his portfolio in a major financial institution.  The stock price was very low and he was “sure” it would come back.  He thought the risk was very low of losing money on that investment.

What happened of course is that as soon as Anderson made this investment it dropped 20% – in one day.

Maybe Anderson’s investment will eventually work out.  But even if it does, I believe this type of action is a mistake.

Remember, Anderson is a conservative investor.   Does investing 40% of your portfolio in one stock sound like a conservative move?

Even if you wouldn’t put a large sum in any one investment, we can all  learn a great deal from Anderson.  Here are the steps I recommend:

1.  Get present and get out of your emotion.

Anderson doesn’t rely on the money in question for income.  He has no plans to use the capital either.  The losses, while painful, don’t impact him in any meaningful financial way right now.  He probably won’t access the income from the account for at least another 5 years.   It would be nice to “fix” the portfolio immediate but that’s an emotional need rather than a financial need.  As a result of trying to feel better, he took on much higher risks.

2.  Don’t kid yourself.

If you think any investment is a “sure bet” – you haven’t been following the news over the last 14 months.    If we’ve learned anything, we’ve learned that every investment has an element of risk.  The quicker the expected investment return, the higher the risk.  This is true no matter what investment you are thinking of.

3.  Honestly assess what your financial needs are right now and invest accordingly.

The right move for you right now could be to do nothing.  The right move might be to move everything into cash.  The right move might be to put 40% of your money into one stock (I doubt it….but it’s possible).  it depends on who you are and what your financial needs.  Don’t ever forget your goals, objectives  and risk tolerance when you invest.

Have you been tempted to abondon your investment strategy because of fear, impatience or greed?  Do you agree with these ideas?  Why or why not?

Like this article? You will love getting my free brilliant financial updates! No spam, and I won't give your email address to any other person or company.That's a personal promise. Neal Frankle, Certified Financial Planner, Los Angeles, California

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