Our rose-tinted view of investments
It comes as little surprise that 48% of respondents to the latest eZonomics online poll have not sold underperforming investments in the last year. Selling an investment that is not meeting expectation can be hard. And, as the eZonomics video The mistake of not giving up says, investors can be influenced by the so-called “endowment effect” thinking trap, which can make us over-value what we own and be less inclined to sell an investment on a losing streak. It can influence how we view property, shares and other investments. The idea is further explained in Chris Dillow’s eZonomics blog It’s mine, so it’s worth it and in an article about “sunk costs” on personal finance website LearnVest. The video suggests trying to view investments objectively – rather than through the eyes of an owner – to get a clearer view of whether to buy, sell or hold.
Review investments regularly
The decision of whether to sell or hold an underperforming investment will vary from person to person and depend on circumstances. It might not be appropriate, for example, to sell some long-term investments because of a short period of underperformance. A helpful habit, however, is reviewing investments on a regular basis. The video tutorial How to keep track of finances tells how setting time aside to regularly review investments can cut procrastination and expose areas of financial strength and weakness.