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Before You Mess Up Your Portfolio…Stop

The following is an excerpt from a recent article from The Wall Street Journal: “Stop Me Before I Do Something Stupid” (emphasis mine):

“Dieting is easier if you don’t have a half-eaten cake staring at you when you open the refrigerator door…investing is easier too, if you limit the temptations to act badly.

If you often feel compelled to jump on the latest market trend—or bail out during a big market drop—one solution is to turn over management of your portfolio to an adviser, for a fee.  But you can also avoid common mistakes by adopting a steadier, more-disciplined approach.

Emotion long has driven investment decisions by many people—and it is particularly true this year, amid all the scary headlines about the European debt crisis and the U.S. economy’s sputtering performance…investors continue to pull more money out of U.S.-stock mutual funds than they pump in, and yet the Standard & Poor’s 500-stock index returned a flashy 16.4% (including dividends).

Poorly timed buying and selling causes returns of individual investors on average to significantly lag behind the returns of the funds they invest in.  Morningstar calculates that over the decade through August, investors got returns of 5.6% a year, well below the 7.3% average for all of the mutual funds the firm tracks.

But investors who have a good, long-term strategy and are sticking to it despite all the noise in the news, are likely faring better”.


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