Age can influence the financial decision-making process, argue the editors of a new book about how people invest. In "Investor Behavior: The Psychology of Financial Planning and Investing," authors H. Kent Baker and Victor Ricciardi suggest that people of retirement age are more likely to deal with mental mistakes and emotional issues than their younger counterparts.
"Although retirees cannot avoid all behavioral mistakes, people can reduce their effects," Baker and Ricciardi wrote in an email to MarketWatch. "Retirees, with the advice of a financial planner, should develop and follow a disciplined investment strategy, assess their level of risk tolerance, establish an appropriate asset allocation strategy and rebalance portfolios at least once a year."
They also recommended that retirees do the following to continue to invest wisely:
- Consider your mood – Your personality, biases and even your feelings at the moment can influence your investing decisions. For this reason, it's important to have another party offer their opinion.
- Diversify your portfolio – It goes without saying, but putting all of your money in a few similar stocks is never a good idea.
- Don't forget about inflation – The authors gave the example of inflation increasing the rate of return on bonds. This will result in a decrease in bond prices.
- Take news stories with a grain of salt – One of the biggest mistakes that investors of any age can make is having an emotional reaction to a news story about the stock market. Try not to get obsessed with fads and short-term trends.
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Categories: Risk Management, Trading & Portfolio Strategies