Tags: losses | investment | risk | money

Financial Specialist Buckner: Investors Set Themselves Up for Losses

By    |   Tuesday, 29 April 2014 01:18 PM

Fear drives investors to create losing strategies and it's time for change, says Gail Buckner, retirement and financial planning specialist and instructor in Franklin Templeton Investments' global academy.

Investors' choices have frustrated Erik Davidson, chief investment officer at Wells Fargo Private Bank, Buckner explains in a Fox Business column.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

Davidson views the world as filled with attractive opportunities, but says many people aren't taking advantage of them. Instead, they're trying to play it safe with cash and bonds, often seeking lower-quality bonds or those with longer maturities for higher returns.

“By reaching for yield out the maturity curve, investors are putting themselves at greater risk for price declines if interest rates move higher,” warns Davidson.

And hiding out in cash isn't a smart bet either. To get a grasp on the damaging effects, ask a senior citizen, writes Buckner. Every one can tell you how their purchasing power dwindled due to the mere pittance they’re earning on CDs and money market funds.

Even with below-average inflation, these accounts are a losing proposition, she says.

A multitude of research, experiments and books blame this behavior on “loss aversion,” which is a fancy term for “I don’t want to lose any of my money,” explains Buckner.

She cites a study that concluded the emotional/mental “pain” of losing money is twice as intense as the pleasure one gets from a gain. Fear wins, she says.

Most of us need someone who is emotionally detached from “our” money to nudge us in the right direction and stop us from making stupid decisions, Buckner advises.

That applies to the professionals as well. Every money manager should also have a financial advisor, says Buckner.

Banks are finding Treasurys irresistible, reported Bloomberg Businessweek. Financial institutions are awash in cash, they need something to do with it, but they aren't willing to take a lot of risk.

Fed data reveal that commercial banks have plowed $42 billion into U.S. government debt this year.

Like individual investors, they are overly cautious as they focus on concerns such as elusive labor market gains, weaker-than-expected consumer spending and geopolitical events such as the Russia-Ukraine conflict, says Bloomberg Businessweek.

Davidson believes there is too much focus on fear factors and investors need to set their sights on opportunities.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

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Fear drives investors to create losing strategies and it's time for change, says Gail Buckner, retirement and financial planning specialist and instructor in Franklin Templeton Investments' global academy.
losses, investment, risk, money
397
2014-18-29
Tuesday, 29 April 2014 01:18 PM
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