Monday, March 21, 2016

Advise Kids To Ignore Their Guts When Investing

Today’s fantastic family finance article is:

In Gut We Don't Trust

There’s something your teen should know about “gut decisions” and investing. They’re a very bad combo. Today’s article cites yet another study that proves the point.

Here’s how your gut reacts to market swings:

  • The market is booming. Everyone is getting rich but you. Your gut is telling you to go all in. Double down.
  • The market is tanking. Everyone is getting slaughtered. Your gut is telling you to get out. Call in all the chips.

Your gut is wrong. Your gut is telling you to buy high and sell low. The exact opposite of what good investors do.

To put it in teen-speak: if the stock market is like a big awesome party, your gut will be telling you to show up right when the party ends or to leave right before the party kicks into gear. Not cool.

That’s why Warren Buffett, the most successful investor in the world, famously said: “Be fearful when others are greedy and greedy when others are fearful.”

Be wary of the herd.

Warren’s teacher, Benjamin Graham, said: “The investor’s worst enemy is likely to be himself.”

Be wary of your instincts.

When it comes to investing, it takes guts to ignore your gut. The easiest way is to stick with a steady investing plan, no matter what state the stock market party is in.

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