Intertia (def.) The tendency of a body in motion to stay in mortion; or the power of a body at rest to remain at rest.
It is the latter part of this definition that can causes difficulty.? Let?s say your portfolio includes a large slug of company stock that you have accumulated over the years through options or restricted stock awards.? Maybe you inherited a large quantity of stock in the Fortune 500 company your dad worked at for many years.? You know that it isn?t a good idea to keep so much of your net worth tied to the fate of any single company ? but it feels comfortable and familiar. Besides, the stock has been performing nicely, ?pays a nice dividend, and all that market nastiness is behind us now, right?
Over my years as a Certified Financial Planner? I have noticed that there is a tendency for people to underestimate the danger in that which is familiar, and to perhaps overestimate the dangers in the unfamiliar.? ?Investors gain a level of comfort with a stock they have held for many years, especially if it has performed well.?? An individual company stock might seem easier to understand than a diverse portfolio comprised of stocks, bonds, mutual funds, ETF?s,and other assets.? And simple is better, isn?t it?? (not always)
There is nothing wrong with committing a large amount of money to a given stock if you really understand the risk involved, and if YOU WOULD MAKE THE SAME INVESTMENT CHOICE TODAY WERE THE MONEY SITTING IN CASH.
Think about that.? Let?s say you have $100,000 in AT&T stock you inherited from Aunt Elda last year.? The stock has done reasonably well, pays a nice dividend, and you have found memories of Aunt Elda, so you continue to hold the stock.? But let?s say the money were in cash today.? Would you CHOOSE to invest $100,000 entirely in a single company, even AT&T?? ?Probably not.? (and I and most other investment advisors would probably recommend against it!).
All kinds of bad things happen to good stocks.? General Motors was once a blue chip dividend investors dream.? It went bankrupt in 2008.? Pacific Gas and Electric was a steady Eddie utility company ? until it got caught up in the Enron mess.? Shareholders were wiped out.? Cable companies pretty boring??? Adephia Communications shareholders were wiped out after a major embezzlement scandal.? I was once a shareholder of Washington Mutual ? it paid a nice ?healthy? dividend of 4.5%.? I became uncomfortable with their overuse of option ARM mortgages and sold well before the products exploded and destroyed the bank. I?m willing to bet few individual WaMu stockholders even knew what an option ARM was until they read the bankruptcy notices! Sometimes fortunes can turn very quickly due to unforeseen events.? No single company is completely safe.? That is why prudent investors diversify their investments, and few people would or should consider putting their life savings into a single stock.
So considering the risks, if you wouldn?t invest all of your the money in that stock today, why would you CONTINUE to hold that investment?? Fond memories of deceased relatives aside, there is really no reason to keep an investment if you wouldn?t choose to make the exact same investment today.? After all, you do have a choice.? The only thing stopping you is inertia.
Source: http://financialpathways.net/overcoming-investment-inertia/
bill cosby divine mercy cabin in the woods the legend of korra three stooges the three stooges the bee gees
No comments:
Post a Comment