There is an interesting article in the Wall Street Journal that gives a few rules about making big investing mistakes by practicing self discipline. These include:
- Create an investment framework for all of your future needs – what are your goals and earmark investments for these goals.
- Get real about what you can expect from your funds – funds with unusually high returns are often managed by managers who got lucky and can be followed by low returns.
- Zag when others are zigging – avoid fads that look “hot” because you often find out about them when they are about to go “cold.”
- If you tend to panic during market meltdowns, pick funds that are less volatile than the market – or create a well diversified portfolio that allows you to sleep well even if the market turns down.
- Whenever you buy or sell a fund, consider the impact on your overall portfolio – remember that a well diversified portfolio needs to stay diversified to work for you.
But the best piece of advice is to turn over management of your portfolio to an adviser. Advisers are paid not just to create portfolios that are right for you, but they are paid to avoid panic and ill-timed zigs and zags. They are careful to avoid fads and have realistic expectations of what you can expect to get as a return on your funds.