A new book titled “Investor Behavior: The Psychology of Financial Planning and Investing” gives us five great tips on saving for retirement. More from MarketWatch:
1. Don’t ignore the detrimental effects of inflation on fixed income and financial assets. For example, as inflation increases, the required rate of return on bonds increases resulting in a decrease in bond prices.
2. Don’t react emotionally to news stories or short-term trends about the stock market.
3. Don’t chase past performance. Mutual funds attract investors by increasing their advertising on high performing funds. Using past performance as a strategy rarely works. Thus, retirees should avoid jumping on the bandwagon and following the herd.
4. Don’t ignore the effect that personality, mood, affect, and cognitive biases shape investment and trading decisions.
5. Don’t fail to have a diversified portfolio. That is, putting all your eggs in one basket is not a good idea from an investment perspective.