HOW TO Avoid CERTAIN InvestMENT Traps and maximise your ReturnS 

Whenever money involved, there will always be traps you’ll want to avoid. Knowing about these traps beforehand can make them much easier to recognise. The traps that are shared in this article are all essentially psychological in nature, so they apply to everyone. 

Avoid the following traps and you’ll be a much more successful investor:

1) The sunk cost trap is primarily caused by pride

With this trap the investor is attempting to protect his previous decision. For investments, there is more at stake than just pride, however. Sometimes it’s necessary to just take the loss and move on. If your investment turns out to be a dud or is dropping quickly, the sooner you get out, the better.  Some stocks can take a decade to recover. Some never recover. Move on when the right time comes. 

2)Another trap is confirming a poor investment with those who provided the initial advice

If you’re questioning the quality of an investment the worst person to get reassurance from is the person who first suggested the stock. Don’t fall into a codependent investing relationship. There’s no value in mutually confirming a bad decision to each other. Misery loves company, but you don’t have to fall into this trap.

Seek out an objective source of information to make a wise decision.

3)Avoid letting friends and family lead you astray

Limit the amount of influence that your friends and family have over your investment decisions.  Your brother doesn’t necessarily know anything about the stock market or municipal bonds simply because he’s your brother.

Only allow others to influence your decisions if they have proven their expertise in this area. It can be challenging to handle friends and family when it comes to money. Be smart. 

4)Freezing and inertia 

You’ve probably heard that there are two basic responses a human can have when threatened: fight or flight. But there is also a third, which is called freezing. Do you find it difficult to take action when things are going badly? When there is a challenge, it’s best to make a thoughtful decision and promptly act upon it. Don't wait until it's too late.

5)Be flexible

Many people believe the first thing they hear without letting their opinion evolve. For example, consider the lowly egg. Most of us were brought up to believe that whole eggs are unhealthy. However, even though there is now research to support that eggs are extremely healthy, you’re probably still hesitant to eat too many eggs.

The first thing you hear isn’t necessarily the most accurate. Be open to all of the information that is available. If they were wrong about eggs, consider how many other things you believe that might also be inaccurate.

6)Avoid overestimating your investment acumen

Many individuals want to believe they can out-think the experts.  The truth is that many self-proclaimed "experts" are people who have done a great job of marketing themselves. You might be able to do better than these people, but it’s wiser to do your research and seek out true experts with legitimate qualifications.

A good financial advisor is a true expert who spends all day examining investments. They frequently have access to information that the average investor does not. Many investors have piddled away a fortune because they were certain they knew better than everyone else. Maybe you’re a financial genius, but can you afford to risk it if you're not?

7)Human psychology is a really tricky thing

It’s easy to fall into these traps and watch your investment portfolio take a serious hit. When the situation becomes heated, you’re much more likely to fall victim to yourself.

The solution is to be open-minded and honest with yourself regarding your investments and to seek the advice of experts. By avoiding investing traps, you can enjoy greater returns.