Confidence is vital to investing. Yet, too much or too little can negatively impact your investing strategy. Finding the appropriate level of confidence is necessary for every investor, no matter your experience level.
“A lack of confidence can lead to paralysis, while overconfidence can lead to a wanton disregard of risks and common investing maxims. Your goal as an investor is to evaluate your confidence level and to measure its impact on your decision-making.” (courtesy of Indy Star)
Mistakes driven by overconfidence
The most common investing mistake that stems from overconfidence is making investing decisions based on brand recognition. You use a company’s product or service, thus they are a known and safe entity. But making investing decisions based on your perception of a company is misplaced confidence. You may be a good judge of what products and services are popular, but this isn’t always reflected in the company’s financials.
Mistakes driven by lack of confidence
When you lack confidence in your investing abilities your most likely course of action is no action at all. Inaction is the calling card of those unconfident in their knowledge of the investing world.
So what’s the solution?
“One of the best ways to improve confidence is through education. Familiarizing yourself with investment terms, concepts and trends can help you comprehend and analyze investment opportunities you might face. Taking time to read your investment statements, reading fund information and prospectus, and keeping current with this blog are great ways to boost confidence. By fully comprehending how your investments work, you’ll be less likely to suffer the ills of overconfidence and a lack confidence.” (courtesy of Indy Star)
Read more about investing confidence here.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.