My kids all go back to school tomorrow morning.  They are all so excited to go back (which is quite the contrast from their attitudes about school at the end of last May!)  They’ve all got the new shoes, clothes, backpacks, haircuts and plenty of school supplies (their supply lists were a mile long!)  And they are actually looking forward to school lunch again.  At the end of last year you would have thought the lunch lady’s were trying to  feed them rat poison to hear them talk about it.  Going back to school this time of year can be quite an emotional experience for most kids.

This whole sense of excitement and adrenaline about the prospects of a new school year is very similar to how you might feel when you buy a new stock or other investment.  There’s this rush that you can get as you think about how the stock just might qradruple in value, kind of like coming home with a huge bad full of new clothes.  Or you might envision a potential merger with another company that instantly makes your stock jump 50%, kind of like how a kid believes that his new pair of shoes is going to make him run faster and jump higher.  Buying stocks can be a very exciting game that many people get addicted to in a very real way.   (Really!  You can read more about it here.)

But investing this way can be very dangerous to your portfolio.  If you are buying stocks or mutual funds based on past performance, with the anticipation that it will continue to perform as it has in the past, you’re setting yourself up for some big losses.  Why?  Because last years top performers rarely repeat.  But losers often do repeat.  That’s a fact.   So why do so many people invest in top-rated 5 star funds all the time?  They see these funds that have performed so well over the last 6 months or 1 year and they just can’t wait to put thier money into it.  The excitement is too much to handle.  And the fear of missing out on another year of performance like that is also unbearable.  So they invest in it. 

And then so many of these people continue to ask me, “Why does everything I buy go down, and everything I sell go up?”  It’s because they are emotionally investing.  And it’s a very dangerous game to play.  And it’s one of the number one reasons why most people severely under-perform the market returns over time.  To read more about why it’s so hard for most people to beat the market, and how you can improve your portfolio’s performance, visit www.Great-Financial-Planning.com/investments.html

So the next time the “Back To School Jitters” start to give you the itch to buy some stocks, take some time to really study and think about what you want to buy and why.  Or maybe you should consider letting a professional investment manager help you manage your portfolio (or part of it) so that you don’t fall into the trap of emotional investing.  It could help your financial plan succeed a lot quicker.

And of course, my wife and I are very much looking forward to some peace and quiet in the house again.

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