When it comes to investing, we humans can't help but get in our own way. In fact, the very traits that have allowed us to survive and thrive as a species can make us bad investors. Let's discuss how overconfidence might be detrimental to financial freedom.
Confidence is good! Many of us have been told we can achieve anything we desire – the sky's the limit. A healthy self-esteem gives us the tools to achieve greatness. It fuels discovery, innovation and commerce.
But overconfidence in investing can foster repeated poor decisions. Overconfidence can be dangerous because we believe we know what's going to happen; we think we have insights others may lack.
Consider receiving an unexpected bonus that results in money to invest. Rationally we might know that timing the market doesn't work, and that we should invest in a manner aligned with our objectives.
But perhaps we think we know that the market is going to go down soon, so we don't invest right away. Then instead of going down, what if it actually goes up? Now we certainly don't want to invest because we'd have to recognize that we should have gotten in sooner.
We're left sitting on a bunch of cash waiting for an arbitrary event to occur. Instead, working with an advisor who can align your assets with your goals increases your opportunity for success and helps keeps overconfidence at bay.
Nicole Gopoian Wirick JD, CFP® is the President of Prosperity Wealth Strategies, a business she founded to focus on providing a high touch, concierge style approach to financial planning. Call today to explore how she can help you achieve prosperity.