Sit tight: the dangers of being an investing magpie
Switching quickly from underperforming investments can become a bad habit
Magpies have a reputation for picking up shiny things and then dropping them when the allure dulls. Similarly, in the investment trade, one often sees investors looking to move money – switch – out of one fund manager into another, simply because the latter was a top performer the previous year. Switching refers to the practice of shifting one's investments between different funds to generate better overall returns. Fundamentally, investors believe they can consistently predict when a particular fund will produce better returns than the alternatives, and take advantage of this by investing or disinvesting at the appropriate time. However, investors have a bad habit of being quick to switch from investments that are underperforming, sometimes only marginally, to the current leaders. Avoid short-termism Due to the influence of human emotion, many people are tempted to chase better short-term returns and end up making the wrong investment decisions. Shifting one's investments between f...
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