Stay Focused on Your Long Term Goals

Have you heard the story about how if you ask a room full of people to raise their hand if they are an above average driver that about 85% will raise their hand (of course, we know that is statistically impossible). Many investors are similar in that they think they are more knowledgeable than the next guy, because they heard someone on TV last night comment that utility stocks pay a nice dividend. Trust me, I’m not a pessimist, but there is about as good a chance that I will play for the New York Yankees next year as there is that you will find the next Microsoft before the professionals on Wall Street do.

Overconfident investors tend to trade frequently, because they think their knowledge is superior to the person on the other side of the trade. Frequent trading can be hazardous to your wealth. Rather than making bets on individual stocks that you hear the news anchor reference in the business report, investors are better advised to resist the temptation of acting on such information and stay focused on a long term asset allocation that offers the diversification that is consistent with their tolerance for risk and will aid them in meeting their goals.

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