When making financial decisions, don’t base them on what you wish will happen or think thaMagic(108237)Credit: Free image courtesy of FreeDigitalPhotos.nett if you wave a magic wand, everything will be okay.  After all, you wouldn’t neglect your savings plan in favor of purchasing a lottery ticket on the eve of your retirement.  Hoping for high returns or never-ending real-estate booms can overshadow the reality of today’s economy.

Instead, base your expectations on solid research.  Before buying a product, ask yourself if it sounds reasonable.  If something sounds too good to be true, chances are it’s a scam.  I’m amazed at how often, post-Bernie Madoff, I’ve met with people who have told me that they gave a sum of money to a friend/relative/organization to invest, don’t receive monthly statements, and are unsure about how their money is faring.  When I draw the comparison between their “safe” investment and the recent Ponzi scheme, I’m told, “But this is different - I’ve known the guy for the longest time.” 

After you invest, make sure you review your monthly statements and stay abreast of your finances.  Ignorance is not bliss.  While you shouldn’t lose sleep over every market movement (after all, volatility is the natural state of the market), don’t file your statements without reading them.  Financial firms like green (both money and trees); they wouldn’t send you mail if it wasn’t important.  Legal requirements obligate the firms to send out reports for the investor’s benefit.  Even if you’re invested for the long term, it behooves you to look at your trade confirmations and monthly statements carefully. 

Everyone wishes that their investments would constantly increase in value.  However, closing your eyes, blowing out the candle, and making a wish won’t help your bottom line as much as doing due diligence, proper diversification, and risk control.  Turn to a financial adviser for help, but realize that at the end of the day, your financial adviser is just that - your adviser.  Unless you’ve given him discretionary powers, the final decision of any investment is up to you.  It is logic, not magic, that will help you at the end of the day. Make a well-educated decision, not a wish.

For further information on how to make logical financial decisions and plans, read A Guide to the Secrets of Long Term Financial Planning.


Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.