1. What common irrational behaviors may lead to fund investment failure?
In the process of investment practice, the following common irrational investment behaviors may lead to fund investment failure:
(1) Unconsciously chasing the rise and killing the fall
I heard that Lao Wang recently made a lot of money by buying funds, "" The stock market performed too poorly in 2018, even falling to 2500 points in October. Should I sell all my stock funds? "... Similar voices are always heard. Historical experience tells us that investors are prone to chasing after gains and selling losses in the process of investing in equity products. When they see others making money by buying funds, they also want to invest in stock funds, and often follow the market to buy. The more the market rises, the higher their position increases; When the market falls, it's the same. The lower the market level, the more panic buying occurs. The result of this approach is a continuous pursuit of gains and losses during the investment process, leading to increasing losses and decreasing principal.
(2) Making decisions solely based on past performance
Undoubtedly, the historical performance of a fund, especially in actively managed products, can reflect the management ability of the fund manager and is also an important reference for investors in making investment decisions. However, past performance does not represent a commitment to future investment capabilities, especially short-term performance, which may often mislead decision-making. This is because markets and industries often have cyclical fluctuations, which have been good in the past but may pose risks of adjustment in the future; The past period has been bad, and there is also a possibility of reversal in the future.
(3) Lack of risk awareness
From the past 20 years of history, as a popular financial tool, funds can bring good investment returns to investors in the medium and long term as they are used properly. Compared to direct investment in stocks, funds as a combination investment tool have relatively lower risks; However, public funds, especially equity funds, also carry certain risks. The market is volatile and funds are risky. We cannot only see the potential returns of investments, but also remember that returns and risks coexist!
(4) Lack of awareness of long-term holding
The timing of investment is indeed important, but what is more important than the timing of entering the market is long-term holding. Using short-term trading thinking to invest in funds is very dangerous, not only because short-term timing itself is very difficult, but also because the cost of fund redemption is high. Frequent trading not only increases the probability of making mistakes, but also generates very high trading costs, which often backfire.
(5) Improper product selection
No product can meet all the needs of investors. Different types of products have different risk and return characteristics, and investors need to choose fund categories rationally based on their own situations. Just as a low-risk investor is not suitable for allocating too many high-risk stock funds, an investor with a high level of risk appetite, strong risk tolerance, and high expectations for expected returns is also not suitable for allocating too many assets to low-risk fixed income funds. Even for the same type of product, different funds will have their own styles and characteristics. In the specific decision-making process, investors need to have a clear understanding of the risk level, product category, investment direction, and fund manager investment style of the product they have chosen.
2. What should I do when the net asset value of the fund fluctuates?
If the stock market fluctuates, the net asset value of the fund will inevitably fluctuate. When the net asset value of a fund fluctuates, investors will make many different choices, some choose to continue holding, while others choose to sell and wait. From the perspective of value investing, it is unwise to abandon investment targets that have already been held at a stage where prices are far below their intrinsic value.
The first reason is that long-term holding may test investors' mentality, but holding funds with excellent long-term performance will have a higher investment success rate. If the selected fund product itself has no problems in operation management and investment direction, although short-term fluctuations may lead to a decline, the future prospects are likely to be bright. On the contrary, if investors leave based on their own predictions of market trends and believe that there is no opportunity in the near future, they may miss the upward phase if their judgment is wrong. Waiting for the best stage of the market with long-term funds may be a more secure and effective way.
The second reason is that timing is a low probability of success, but in the long run, adhering to disciplined investment is more valuable. Investors often come across various market viewpoints and analysis articles, and then make investment decisions based on them. These market viewpoints have diverse perspectives and different conclusions, and making timing trades entirely based on them also increases the probability of making mistakes. The capital market is inherently complex and unpredictable. To achieve long-term good returns in the market, one must overcome human weaknesses and stay away from timing difficulties through disciplined long-term investments.
The third reason is that excellent active fund products have excess returns in the long run. According to data from the Fund Industry Association, from 2001 to 2016, the average annualized return rate of equity funds in the entire market was 16.52%, while the annualized return rate of the Shanghai Composite Index was 7.75% during the same period. The average excess return per year was close to 9%, and outstanding fund products had even higher excess returns. The benefits of holding excellent products for the long term are very obvious. Not only can it help us obtain higher long-term returns, but it is also an effective strategy for us to avoid investment losses caused by short-term market fluctuations.
3. What investment methods may help reduce fund investment risks?
(1) Persist in portfolio investment
The so-called portfolio investment, in layman's terms, means "don't put all your eggs in one basket", which is an effective way to reduce the investment risk of funds. Modern financial theory has proven that portfolio investment can effectively reduce non systematic risks in the securities market. However, it should be pointed out that portfolio investment is not a simple repeated investment. If investors repeatedly purchase multiple products without discrimination, it cannot play a role in reducing risk. A good fund portfolio is not necessarily better with a larger number of funds, but rather with an appropriate level of differentiation in the fund products to achieve the goal of risk diversification.
(2) Fund fixed investment
Whether it is active equity fund or passive index fund investment, fund fixed investment is more suitable for investors who lack investment experience or sufficient energy to analyze and track the market. Its significance lies in the ability to avoid market volatility risks to a certain extent through disciplined batch purchases. Fund fixed investment cannot help us' buy bottom ', but it can help us share the purchase cost evenly.
(3) We need to have a reverse thinking approach
Buffett has a famous investment saying: "If others are greedy, I fear; if others are afraid, I am greedy. This sentence means that investment should have the mindset of operating against market sentiment. Most people follow market sentiment in the actual operation process, and this way of thinking is essentially determined by human nature. The market is always fluctuating. In addition to portfolio investment and fund fixed investment, when the market sentiment is low, it is appropriate to increase the deduction amount for fixed investment or increase the equity fund position appropriately; When market sentiment is high, reducing equity fund positions appropriately is also an effective way to avoid fund investment risks.
