raisinbran20 asked
The biggest obstacle standing between the average investor and his/her financial goals, according to Moore, is our inherent human nature. We get very emotional about money issues. (I wrote about these tendencies in a previous article on behavioral finance.) 'We often invest on an emotional basis and that gets us into trouble,' Moore says. 'For instance, we're constantly investing at the wrong time and getting out at the wrong time.' Just take a look at mutual fund sales. When the stock market's down, sales decline. When stock prices are soaring (think 'late 1990s'), money is pouring into funds. So we end up 'Buying high and selling low' — just the opposite of what we ought to be doing. Another case in point: since the (admittedly brutal) stock market decline we experienced from 2000-2002, people have been contributing less to their 401(k) accounts. In Moore's view, that's completely crazy. 'Baby boomers know they ought to be saving,' he says. 'Sure, the market's been nasty, but we're missing a hell of a buying opportunity. The NASDAQ has marked everything down more than 50 percent!' Our experience with the financial markets has a direct impact on the emotions we attach to them. Just ask your parents or grandparents or anyone else who lived through the Depression. 'Depression babies hate the stock market, hate it,' says Moore. (In fact, most people of this generation consider the 1929 stock market crash the cause of the Great Depression, when the crash was simply another consequence caused by a multitude of factors.) Moore's implicit message: Don't let recent market history scare you away from the next 75 years of returns.
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