10 Rules: Don’t Chase Trends

December 23rd, 2006  |  Published in Investing

One of things that a lot of people do, without even thinking about it, is the topic of this particular tip. Human beings have a natural herd mentality and so when there are trends, people want to be a part of it whether it’s bell-bottom pants or its investments. During the dot-com bubble that burst in 2001, money flowed into the industry like crazy. This past year, money flowed into energy and gold like crazy. When ETFs were first introduced, money jumped from mutual funds to ETFs like it was going out of style. The fifth tip of Forbes ten rules for building wealth is that smart investors should not chase trends.

The logic behind this tip is that you’re in it for the long haul and that you shouldn’t switch your long-term strategy for the next hot thing that comes along. Not only shouldn’t you make these course corrections because its not part of your grand plan (and because by the time you see it, it has already peaked), it’s also expensive to be jumping around to the hottest thing.

This is what Forbes says you should ask yourself if you do decide to jump:

Can I describe how it works in plain English? If not, start your research at Investopedia.com. Why is it so popular right now? If the answer is “Paris Hilton bought some,” best to stay away.

Source: Fortune

  

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