After almost 20 years of interacting with investors (and potential investors) on a daily basis, I’ve noticed some common themes that prevent investors from achieving their potential. If you can avoid all three, you are almost guaranteed to achieve financial security.
Whilst some of these matters seem relatively simple, you should not let their simplicity fool you into thinking that they are anything less than critical.
Why do we tend to overcomplicate matters?
I believe that investing is simple. If you adopt a rules and evidence-based approach towards making investment decisions, it is virtually impossible to make a mistake. Successful investing is rooted in sound logic and basic math. There is nothing overly complex about it that cannot be explained in simple terms. That is why I wrote
Investopoly – to outline 8 time-tested rules that if followed, would guarantee investors avoid making costly mistakes. I apologise if that sounds like a sales spiel. And I appreciate it sounds like a big promise. But I stand by it.
If investing is simple, why do people over-complicate it? Of course, the reason depends on the individual. However, I think there are probably two reasons.
Firstly, there is a lot at stake i.e. my family’s financial security, our dreams and goals. Given what’s at stake, people can have the tendency to over-think it due to fear of making a mistake.
Secondly, to many people, investing seems complex. Humans tend to
think that complex problems require complex solutions. The truth is, simple solutions tend to be very effective, exhibit lower risk, lower cost, easy to implement and easy to understand.
Most mistakes are made by over-complicating financial decisions than over-simplifying them.
Investment mistake # 1: try to work it all out themselves
As a rule, I don’t perform my own dental work. I go to a dentist. When buying a property, I don’t do the conveyancing myself. I engage a professional and experienced lawyer. I don’t service my car… you get the point.
I rely on various professionals when (1) the consequences of making a mistake are unacceptable and (2) I don’t have enough knowledge and experience to give me a high level of confidence that I will not make any mistakes.
It has always puzzled me why
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