Volume 93 No. 2 - February 2022
In traditional religious thought, the seven deadly sins lead to proverbial danger and downfall. We can extend these same warnings to investing. Like warnings in other parts of our lives, if we ignore these harmful approaches to investing, we may endanger our financial goals and even risk financial security.
Prudent investors recognize the wisdom of avoiding these seven deadly sins and are most successful when they work hard to avoid them.
Pride Strong investment performance and an increase in wealth are common goals of investors. Once investment gains are achieved, it is important to remain humble and avoid bragging or boasting about what you are doing. “Pride comes before a fall” can ring true here. Working with an investment advisor can help you manage your emotions and stay grounded in your strategy and goals for your investments.
Envy Just because an investment worked for someone else does not mean it will work for you. Past results do not predict future performance. Don’t try to chase someone else’s success.
We all hear stories about large gains that other investors achieve in various types of investments. Chasing these investments—whether they are traditional investments or not—based on what they’ve already done can be an unsuccessful investment strategy.
Wrath Don’t buy or sell your investments based solely on emotion. Ground your investment strategy, actions (and reactions) on reason. The news media makes its money by explaining to you how you should feel or react to the day’s headlines. Often, those headlines have very little lasting effect on the economy.
The underlying value of an investment comes from the strengths and merits of its issuer, not what a media personality says about a company, its leaders, or employees. A sound investment strategy is rooted in reason and analysis, not knee-jerk reactions to day-to-day events reported on your TV screen.
Gluttony Gluttons waste resources. In investing, gluttons waste opportunities. This can take the form of hoarding cash in a savings account or holding on to a position for too long. When you commit the deadly sin of gluttony in investing, you are not putting your resources to optimal use.
It is also important to consider the fees associated with your investments. High fees and commissions can eat into principal and growth of your investments. It is important to know and understand the fees you are paying.
Lust Don’t let a hot tip reset the course for your investment strategy. Following the hot stock can undo years and decades of diligent planning and investing, sometimes literally overnight.
Many high-risk investments lack historical data. They have not been time-tested and their reaction to market stresses may not be understood. They may also be the breeding ground of scams.
It is important to emphasize quality in your portfolio. Strong financials, tested management, and competitive advantage allow a company to prosper over the long-term.
Sloth A key component of a buy-and-hold strategy is diversification. A lack of diversification can be just as harmful as other investing mistakes. Proper diversification across asset classes, sectors, and industries can reduce risk.
In addition to diversification, patience is also critically important. Markets experience times of above average returns, and below average returns. Patience allows an investor to not be deterred by intermittent swings and short-term events.
Greed Maintain your target allocations. If you experience significant growth in your equity positions, your portfolio may deviate from the target allocations that you have established as part of your investment strategy. An 80/20 split between equity and fixed income can quickly become 90/10 as a result of market movements. Don’t let greed steer you toward more risk than you want to accept.
ICI: Here to help
At Investment Counsel, we’re here to listen to your questions, help you establish your goals, and monitor your investment strategies. When deciding which investments to include in your portfolio, you need to consider your long-term needs and goals in relation to your situation today.
“Investing is simple, but it’s not easy,” Warren Buffet once said. We appreciate the simplicity of that advice – and apply it when we work with our clients. We pride ourselves on the transparency of our communications with and advice to clients. We help our clients recognize and avoid the temptations of the seven deadly sins of investing. We help them work toward their goals.
Slow, steady, and reasoned wins the race
It’s important to stay on top of your investment goals and take a reasoned, disciplined approach to investing. Investment Counsel has worked with its clients to navigate the ups and downs of the markets. Sometimes, the best reaction to the day’s financial or political news is patience.
To discuss your portfolio, questions, or to help you analyze your investment strategy and goals, please give us a call. The best things come to those who can wait when they need to, and act when the time is right.
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Chris and Todd are enjoying the winter months by downhill and cross-country skiing. There has been no shortage of appropriately cold weather thus far!
Investment Counsel Inc., a Division of LaFleur & Godfrey, is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.