July 7, 2012

Top 10 Investor Errors: Cognitive Error

Eighth of 10 short articles by Barry RItholtz.

This nugget from today's article leads directly to my comments on a previous article:

"These are the errors that are inherent in our wetware – namely, the way your brain has evolved over the millenia. Suffice it to say that capital risk decision-making was not a big issue on the Serengeti plains. On the other hand, avoiding getting eaten by lions was."

In other words, we're risk-averse beasties who don't inherently know how to navigate long-term financial planning without help from those who think long and hard about these things. Yet we need to do this very thing we aren't wired to handle. What to do?

Read up, find an investment company that offers automatically diversified mutual funds, and set up automatic deposits. Then take your hand off the wheel and let the markets do their thing. Re-visit once a year.