Note: I am NOT a broker, investment strategist, or professional trader. I am sharing some information I came across and thought could be useful to someone that is investing or is thinking of investing.
Even before I found
Robert Kiyosaki and read his book "The CashFlow Quadrant"
"Rich Dad's Guide to Financial Freedom" I always wanted to own stocks and real estate thinking that would define me as being successful.
I liked looking into my 401k adjusting positions being aggressive in some areas and safe in others and then watching the markets unfold in ways I hoped for with any real plan or defined goals because I really didn't know what I was doing.
I remember back the mid 90's receiving stock options from an employer and watching as the stock grew and grew. I was in my twenties and that was really my first dabble in the stock market and at one point, I saw dollars signs and my gutt told me to sell everything. Listening to others telling me to hold and plan keep the options for my future i.e. retirement and my kids college education, I held only to watch the stock drop like a elephant thrown out of an airplane and so did my chance of making gobs of money.
Setting Your Investment Objectives...
In setting investment objectives, few people effectively unify their understanding of their personal financial circumstances, risk preference, and knowledge of the financial markets. Most like me go on wishful thinking.
The lack of perspective and realism is proven in some numbers I came across that show relatively safe returns of around 9% are ignored in favor of highly risky "opportunities" for 20+% returns. Yeah, for sure that 20+% returns would multiply an investment almost one hundred fold in 25 years - but really... truly......
How many people have enjoyed that kind of success?
Think about this, that 9% is close to the long term average return to "common-stock" investors, who have accepted considerable risk to achieve it.
Identifying resources, including future earnings, carefully considering future needs, understanding personal risk tolerance, and allowing low-risk investment returns to compound have worked magic for many investors.
Failure to diversify is another result of that "wishful thinking" hoping. Of course putting all your eggs into one basket can be exciting like going ALL-IN on a poker table, and if you're right can lead to the great potential on returns.
BUT...
If you have a lot to lose (such as life savings), then disaster may be waiting right around the corner. On the other side of the coin playing it too safe and hedging every potential development is probably only appropriate for the extremely wealthy.
Falling somewhere on the middle is ideal, where you employ reasonable diversification, both in terms of types of investments and within the selected types.
This will temper the risk and opportunity reflected in your investment objectives.
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