Demystifying common investing behaviors among Asian-Americans investinyou (In partnership with acorns.)
Diversified portfolios, aligned with risk tolerance and goals, can add tremendous value to avoid common investing pitfalls due to behavioral biases, including overconfidence — taking on riskier bets exceeding our tolerance level — and familiarity bias — avoiding diversifying into capital markets we do not know very well, for example.
Many Asian-American investors also over-allocate in real property investing and are not aware of the risk that loss could be catastrophic if things go wrong, such as the financial crisis in 2008. A prudent strategy is to set an allocation target for tangible properties and maintain our exposure over time.It is common for Asian Americans to exchange investing ideas during gatherings of family and friends. Be cautious — such advice can easily be misleading if it is not from a prudent resource.
Additionally, past performance is not a good indicator of future returns. Therefore, do not feel missing out when you overhear someone talking about making a fortune from a stock in past months because the truth is that they will not tell you when they lose money. How foolish it is to chase past performance based on non-fully-disclosed information. Another truth is that good companies are not necessarily good stocks to buy because they can be overpriced at the moment.
With the awareness of common investing beliefs and biases, and with the knowledge of investing literacy, the Asian-American community can overcome its behavioral hurdles to become more patient, educated, and wiser investors. As Benjamin Franklin once said: "An investment in knowledge pays the most interest."
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