If you don't watch your back, you can find yourself in some scary situations. It's true in horror films, and it's true in your investing career.
In Part 1 of this two-part series, we looked at horror movie tropes and their investing counterparts, including the car that never starts (picking the wrong investment vehicle), the killer who won’t die (not having a contingency fund), and the fact that there will be a sequel (high fees). Now, let’s look at a few more clichés that can threaten even smart investors.
Horror Movie Trope: Bad cell reception.
In metropolitan areas or desolate backwoods locations, the cell phones always work in horror movies until the prey needs to make a call for help.
Financial Horror to Avoid: Missed connections with your advisor.
Not all financial advisors were created equal. Some are terrific, others are unethical, and still others have too many clients and, thus, may choose to concentrate their efforts on those with the highest net worth or investment portfolio. Despite the fact that many consider dentists to be “wealthy,” you and I both know that to be a misnomer for the vast majority of dentists. Make sure the advisor you choose answers your calls, no matter what level of peril you’re in.
Horror movie trope: Losing it on the jump scare.
The music slowly turns ominous. Our movie star gets an odd feeling, looks around, and slowly opens the closet door…MEOW! The harmless cat comes leaping and screaming out of the closet. The hero breathes a deep sigh of relief…for now!
Financial Horror to Avoid: Overreacting to a market scare.
All markets are cyclical. But even experienced, long-term investors who know this sometimes fall into the trap of trying to time the market (sell right before a market downturn or buy right before a market recovery), or shedding blue-chip stocks in the face of market turbulence or uncertainty. Britain’s recent decision to exit the EU will have long-term economic consequences both for that region and markets around the world, but it’s too soon to tell what the overall impact of those consequences will be. Overreacting to the market forces of today can lead to unnecessary losses tomorrow and beyond.
Horror movie trope: Trusting someone you don’t know.
That fellow who has a good sense of humor and seems really trustworthy? Yeah, he’s probably either the killer, or he’s secretly working with the killer. In any slasher or horror scenario, stick close to people you know!
Financial Horror to Avoid: Investing in strange or unknown companies or products.
Even if you don’t know a lot about investing and don’t want to know a lot, you should at least be familiar with the pros and cons of any product, stock, or bond you’re considering. Annuities, for example, have a very negative reputation among many investors—unfairly, in some cases—but the truth is that they’re a complex product with significant drawbacks. If you don’t understand what you’re getting into, you have a much greater chance of having your investment slashed.
Developing a sound investment strategy isn’t always fun, but it doesn’t have to feel like a bloodbath. Avoid the tropes above, and you may even be one of the survivors!