Did you know that psychology plays a role in investing? Or that your investment mistakes may be a direct result of your psychological limitations?
In the book, Unshakeable: Your Financial Freedom Playbook, Tony Robbins discusses the idea that your beliefs hinder you more than your actual decisions. Robbins claims “What I’ve found again and again is that 80% of success is psychology and 20% is mechanics.” This suggests that investors who overcome their mental barriers through the use of natural systems avoid investment mistakes and are more successful.
All of us are inclined to believe information that confirms what we already know. Seeking out qualified contradicting opinions is essential to comprehend the big picture. Along with widening our scope, it’s imperative to look at long-term data instead of focusing on trending events. Which is why experts recommend setting up asset allocations, so you aren’t making decisions on the fly.
Even the best investors occasionally make investment mistakes due to overconfidence and a lack of patience. Those who realize they don’t know everything, can’t predict the future and go in for the long term see greater overall success. Another way to ensure success is to eliminate negativity bias and avoid getting stuck in doing what feels comfortable.
Following a few simple rules and developing your process will help you avoid investment mistakes and achieve more wealth over a lifetime. Investing can be complicated, and many people ask if trading makes you rich. However, if you master the psychological elements first, then you’ll be on your way to financial freedom.