Sin #6 – Envy
We’ve all heard our neighbors or co-workers brag about a great investment that they made and felt left out. The wound is even deeper when we were given a tip from a fellow armchair investor several months ago and wrote it off as a foolish move — only to eat our words.
But if you think the solution is to belatedly jump into that investment you missed out on, think again. Not only does past performance fail to guarantee future returns, but you may be abandoning your long-term goals for a short-term pick-me-up.
By way of example, consider the Tocqueville Gold Fund (MUTF: TGLDX) is one of the top-performing mutual funds lately. Year-to-date, it is up over 40%, and in the last 10 years, it’s up a staggering 670%. That’s great, but it’s important to keep in mind that gold funds as a rule have some of the highest standard deviation and beta readings on Wall Street. Or put another way, the ride down can be just as quick as the ride up. So if you’re a conservative investor, this mutual fund is bad news no matter what the profit potential.
Keep this in mind when you envy your neighbor’s returns. Not only may the fund’s run be over, but its strategy may be outside your own personal investment goals.