Photo: Vimeo / Carl Richards
Today’s advice comes from personal finance expert Carl Richards, author of The behaviour Gap: “It can be really hard to behave correctly if we see examples of people being successful while doing things we know have higher odds of a bad outcome (e.g., buying lottery tickets),” Richards wrote on his blog. “But as you’ve probably learned by now, investing isn’t always fair. Bad choices get rewarded, while people who made prudent decisions sometimes appear to be punished—at least in the short run.”
The idea is to make investing decisions that align with your long-term goals, or in other words, to focus on the process, not the outcome. Letting emotion take hold will derail you, much as Richards saw it do to one client he worked with.
Despite dropping to a low of $2 a share, the man refused to sell stock in his grandmother’s mining company, fearing that he’d hurt his family by ditching “the sacred investment” later on. Yet holding onto it was doing a number on his nest egg. He hoped it’d pick up, but it just wasn’t happening.
“The process of making decisions based on principles is the best that we can do when it comes to investing,” says Richards. “And it’s actually what will give us the highest likelihood of long-term success—keeping our eye on the process of making the decision, rather than worrying about the outcome.”
There’s no guarantee your smart decision will end up being the right one, but at the very least you’ll be investing based on sound principles. Emotions are the last thing that should get in your way. Even if they help you avoid pain in the short-term.