NEW YORK (MainStreet) Your brain is hard-wired to hijack your investments. In an advisory to investors issued by the Securities and Exchange Commission and based on report issued by the Federal Research Division of the Library of Congress, nine investing behaviors are identified that often contribute to below average portfolio profits. Avoid these natural tendencies and you will likely reduce risk and enhance the return of your investments.
1. Huddled between monitors, tracking and trading the market minute-by-minute is a failed strategy, according to the report. Active traders attempt to profit from small changes in the market which "generally results in the underperformance of an investor's portfolio," the advisory says.
2. When to buy and when to sell? Deciding how long to hold an investment is a strategy many investors find hard to master. The tendency to hold on to losing investments too long and sell winning investments too soon is known as the disposition effect. The timing of when to sell winners is particularly vexing. The report notes that "[i]n the months following the sale of winning investments, these investments often continue to outperform the losing investments still held in the investor's portfolio."
3. Mutual funds were designed to simplify the process of investing for the everyman. However, investors tend to focus on a fund's past performance and often fail to consider fees. Expense ratios, transaction costs, and load fees can have a significant and negative -- impact on returns.