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Avoiding Self Destructive Behavior

by in Financial Planning
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Once when I was a kid and on vacation with my parents they told me not to climb on a beam that had been placed between two trees. They said I could get hurt. Well for two days I looked at that beam and when nobody was around I climbed up to it. I decided I could go hand over hand across the beam. Sure enough, half way across I slipped and fell and broke my arm. I can still hear the echo of my parents saying, “We told you! You never listen….” After that, I listened a lot more closely, but that was an example of self-destructive behavior. There are lots of examples when it comes to investing. Most of these examples fit into four categories:

• Timing the market
• Chasing hot investments and tips
• Getting scared and selling at the bottom
• Not sticking with a good investment plan

 Why don’t most investors receive the returns they should get? The main reason has to do with being human and listening to the emotions of being human. I will never forget the run-away emotions in 1999. Everybody wanted to invest in technology. That year, there were over a hundred mutual funds up 100% or more. I had to be very firm with clients to prevent them from joining the stampede that would soon go over the cliff. On November 19, 1999, Bill Griffeth of CNBC, was interviewing me. He said, “Vern, what do you think people should do going into 2000?” I said, “Bill, it is obvious that tech and other things are dangerously overvalued. This cannot continue so I suggest everybody get out of tech for at least the first six months of 2000 and see what happens.” Obviously, no one listened and investors got a lot worse than a broken arm. On March 10th of 2000, the market started to crash and over almost three years many investors lost from fifty to eighty percent of their investments.

In March of 2014 a company called Dalbar wrote a research paper entitled, “Quantitative Analysis of Investor Behavior”. Dalbar computed the “Return of the Average Stock Fund Investor” by using industry cash flow reports from the Investment Company Institute. The study covered the years 1994-2013. The conclusion was the average stock fund returned 8.7% annually. However, the average stock fund investor earned only 5.0%. Investors sacrificed almost half of their potential return by engaging in one or all of the self- destructive behaviors listed previously.

The take away from this discussion is to not yield to any self-destructive behavior and have a carefully designed investment plan that is appropriately allocated based on the amount of risk you can handle.

Vern Hayden has been a CFP (Certified Financial Planner) since 1978, and is considered a financial planning pioneer. He is the Founder and President of Hayden Wealth Management Group, a fee-based financial planning firm that offers a comprehensive range of services.

Vern is a regular commentator on several leading national news and financial television programs that appear on CNBC, NBC, Fox News, Bloomberg and PBS, including WealthTrack with Consuelo Mack. CNBC branded Vern, “Mr. Mutual Fund”, and has praised him as “one of the leading Financial Planners in this country” (Brenda Buttner, former Host of The Money Club). He is also a regular contributor to the financial press, including CNBC.com, TheStreet.com, the Journal of Financial Planning, and the American Association of Individual Investors Journal. His latest book, Getting An Investing Game Plan…Creating It…Working It…Winning It, was published in 2007 by John Wiley and Sons. Vern also conducts financial education programs on behalf of many companies and charities, and is a sought-after speaker at financial and industry conventions.

Active in financial planning circles for more than 40 years, Vern has been a board member of the CFP Board of Standards and has chaired the National Endowment for Financial Education, the former parent organization of the College for Financial Planning, which created the CFP™ (Certified Financial Planner) designation. He was President of the North Bay California Chapter of the International Association of Financial Planners (IAFP) in 1975 and Founding President of the Westchester/Rockland Chapter IAFP in 1987.

Vern has a Bachelor of Arts in Philosophy from Wheaton College with extensive graduate work from University of Southern California, American University, University of Oregon and New York University. He was also a Major in the U.S. Air Force. Vern hails from South Salem, NY, and is an avid handball player.

Vern Hayden can be reached at (203) 454-3377 or vhayden@haydenwealth.com.

Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Vern Hayden and Gerard Gruber offering Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.