By John Lim
Want to improve your investment results? The deadly sins below are not only among the most serious financial transgressions, but also they’re among the most common. I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio.
1. Pride: Thinking you can beat the market by picking individual stocks, selecting actively managed funds or timing the market.
Antidote: Humility. By humbly accepting “average” returns through low-cost index funds, you will—paradoxically—outperform the majority of investors.
2. Greed: Having an overly aggressive asset allocation .
Antidote: Moderation. Follow the great Benjamin Graham’s advice and keep no more than 75% of your portfolio in stocks. Once you determine your asset allocation, doggedly maintain it through thick and thin by rebalancing periodically.
3. Lust: Being addicted to financial pornography. Financial pornography—think CNBC and Fox Business—may be entertaining, but it has no lasting value and is actually harmful to your financial health by promoting short-termism.
Antidote: Turn off financial media and delete financial apps from your smartphone.
4. Envy: Chasing performance. This sin trips up more investors than any other. It ultimately leads to the cardinal sin of “buying high and selling low.”
Antidote: Stop comparing your investment performance to that of others. Success is not measured by relative performance, but by whether you meet your own financial goals .
5. Gluttony: Failing to save. You may be a financial saint in every other respect, but—if you fail to save—it’s game over. You can’t invest what you haven’t saved.
Antidote: Start saving something today. Slowly raise your savings rate over time.
6. Impatience: Lacking investing stamina has dire consequences. Patience in financial markets is measured in years, sometimes decades. The first decade of the 21st century was not kind to U.S. stock investors, who lost a cumulative 9%. If you had bailed on U.S. stocks in 2009, you would have missed out on the following decade’s glorious rebound, with annualized returns of over 16%.
Antidote: Patience and a knowledge of financial history. While history doesn’t necessarily repeat, it does rhyme. What history has shown time and again is that markets mean revert—that is, sharp declines are typically followed by rebounds.
7. Sloth: Not contributing enough to get your employer’s full 401(k) match . This is like walking past $100 bills on the sidewalk and being too lazy to pick them up. Similarly, make the effort to rebalance. While doing less is generally beneficial when investing, failing to rebalance is the exception to the rule.
Antidote: If you’re too lazy to rebalance, sign up for a low-cost target-date fund , which will rebalance for you. The antidote for not getting your 401(k) match? Just do it.