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7 Signs You’re Gambling With Your Retirement
Just like any bad habit, there are danger signs that may tip you off that you’re placing high-stakes bets. Before you put another stack of chips on the table consider these seven signs that you’re gambling, rather than investing, your retirement savings:
1. No Exit Strategy. There are always two sides of a trade: a buy and a sell. Many investors and managers focus almost exclusively on when to buy, but if you’re void of a clearly defined exit strategy you’re just gambling. It’s more important to know when you’re going to sell than it is when you’re going to buy.
2. The Single Investment Approach. Using primarily one type of investment (i.e. only mutual funds, stocks, etc.) is akin to going all-in on one hand. There isn't a one-sized fits all investment product that operates well in different market conditions. A true investor incorporates many different types of investment vehicles to achieve true diversification with the goal of “absolute return” during any market, be it bull or bear.
3. The Love Affair. Many market gamblers do all the wrong things for all the right reasons. They buy and hold stocks of companies that they love. When asked why they, answer, “I like this company because they have a great product” or, “they’re a strong company and I've made money with them,” or “I feel like their stock is going up.” Investors know exactly why they bought or are holding a stock and it has nothing to do with loving a company or its products rather it’s a sound and almost scientific reason. Gamblers use feelings, investors use logic.
4. Procrastination. Gamblers procrastinate and hold onto their losers way too long, investors have a Zen-like approach to managing their portfolio. They aren't necessarily timing the market, but they do follow a systematic approach to their buying and selling, not a feeling or a hunch.
5. Entertainment Addiction. One of the more obvious danger signs is when you follow the investment advice of a magazine or television personality. What you’re receiving isn't advice. It’s pure unabashed entertainment. This may disturb the cable networks and their addicted viewers, but if you’re looking to secure your financial future you won’t find the answer there.
6. Loser’s Remorse. It has been said, “Losers average losers,” meaning that stock gamblers have the tendency to double-down on a losing trade only to wind up watching it go even lower. Successful investors know exactly when they are selling (at a set price) before the investment is even initially made. They know from the get-go what their risk and pain threshold is.
7. Palm Reading and Fortune Telling. We are inundated daily with information. There’s a plethora of data vying for your attention: unemployment reports, crop yields, weather patterns, GDP data, retail sales, earnings reports, Federal Reserve notes, geopolitical events, and the list goes on. Market gamblers pretend to be able to digest and discern all this information, and more, believe they’re able to make a profitable investment decision. Wise investors know that this is impossible for any human to accomplish and that there’s only one data point that matters: price. The price of an asset has all of the necessary data baked in. It’s really that simple. If anyone tells you different, even with a team of analysts, economists, and researchers to help them predict market moves, they’re still gambling.