When we were kids, we all made plenty of bad decisions. The repercussions might have been a timeout or worse.
As teenagers we were maybe "grounded" by having certain privileges revoked.
Unlike not being allowed to drive the car, the penalty for making bad financial decisions can cost you thousands of dollars over your lifetime.
Consider these two examples:
Dalbar Inc.'s study, titled "The Quantitative Analysis of Investor Behavior," also shows us what happens when poor investment decisions are made. This study, published each year, calculates the rate of return the "average investor" would earn based on cash flows in and out of equity mutual funds from data provided by the Investment Company Institute. It is then compared to what would have happened to an investment made in an average U.S. diversified equity mutual fund, purchased and held for 20 years (data provided by Lipper, Inc.). Here is a hypothetical illustration of that scenario:
When you look at the key elements to your personal financial success, it begins with good decision making and avoiding critical mistakes. In the two examples above, the penalty for these two individuals was thousands of dollars. And in both situations, the problems could have been avoided with more intelligent behavior.
Neal E. Watson is a certified financial planner practitioner with Fleming Watson Financial Services and a financial advisor with MIAI Inc. His office is located at 512 Third St., Marietta. He can be reached at (740) 373-4877 and be found on the web at www.flemingwatson.com.
