Sailboat_CloseUpWould you rate yourself as an average investor or an above-average investor?

Studies have found that the majority of people believe that they are above-average — whether they’re rating their investing ability or their driving skills — even though by definition only 50% of any group will truly be above average.

Our tendency to believe we’re more skilled than we actually are is called overconfidence. It’s a common behavioral bias and, if left unchecked, it can have a profound impact on our investments.

Mistaking Hunches for Smarts

Overconfidence can lead us to misconstrue decisions based on intuition or emotion as being based on objective information and rational thinking.  Perhaps you sold out of stocks early in 2008 and ended up avoiding the worst of the 2008 bear market. In hindsight, you may feel like you somehow “knew” the market was going to experience a historic decline, and that could lead you to believe that you’ll always be able to avoid down markets.

“Because we’re human, we’re really good at taking a prior success and projecting it into the future,” financial writer Carl Richards wrote. “The end result is an unwarranted, and unhealthy, belief that somehow we’ll come out on top again. We usually fail to take into account all the things that led to our last success.”

And that can lead us to take more risk than is appropriate. If you believe you are adept at sidestepping stock market downturns, you might invest in more concentrated funds like sector funds because you believe you’ll be able to avoid the risk of these funds. And you may not recognize the value of owning bonds, which can cushion stock market declines.

Recognizing this can be hard because it stems from our inability to see ourselves and our skills objectively. But there are simple and effective ways to minimize the impact overconfidence can have on our portfolios.

How to Turn Overconfidence into Investing Competence

Continue reading “Too Much Confidence Can Be Hazardous to Your Wealth” »

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“Many of the investors I talk to these days aren’t only focused on gains,” FundX President Janet Brown explains in her latest video. “They also want to invest in a way that has a positive impact on the world.” And sustainable responsible investing, or SRI, helps them do just that.

Sustainable responsible investing (also known as socially responsible investing or impact investing) is a rapidly growing field. There are now hundreds of funds that aim to help investors align their portfolios with their principles.

Click below to watch and learn how you can get started.

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Having trouble viewing this video? Find it on YouTube here.

Transcript Continue reading “Sustainable Responsible Investing Has Come a Long Way (video)” »

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3 Tips to Master Confirmation Bias

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Most of us think that we make informed investment decisions based on facts, but we’re likely more biased than we realize. One of the most common and persistent biases that can lead investors astray is called confirmation bias, our tendency to seek out information that supports what we already believe. If we think that the […]

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Global Markets at Midyear

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July 2015 Fund & ETF Changes

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3 Ways to Streamline Your Investment Decisions

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We often hear from investors who get sidetracked by a particular trade. One investor went to buy a fund only to find out that her broker charges a transaction fee for the fund. And she wasn’t sure if it was worth paying a fee to own the fund.  Another investor needed to sell a fund, but […]

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How You Can Improve Your Investment Behavior

June 23, 2015

How we behave as investors can have a major impact on our returns. Behavioral finance has shown that our emotions and our biases can affect our choices and cause us to act in ways that aren’t in our best interests. Our emotions can lead us to jump into the market just after a big run-up, […]

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4 Leading Sustainable Responsible Investing (SRI) Funds

June 18, 2015

Sustainable responsible investing (SRI) funds began in the 1970s, but they’ve grown tremendously in the last decade. In 2005, there were around 200 SRI funds, but by 2014 there were more than 900, according to the Forum for Sustainable Responsible Investment (US SIF). Today, many of the largest fund companies like Vanguard and iShares offer […]

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BottomLine Personal: Top Large-Cap Growth Funds

June 16, 2015

Growth funds have been in favor this year, and FundX Chief Investment Officer Jason Browne shared two leading large-cap growth funds with BottomLine Personal. Click here to read Top Large-Cap Growth Funds. The top large-cap growth funds tend to be focused on sectors like health care, technology and consumer ­discretionary, and exposure to these winning areas […]

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