Saw the following, relating the results found in a report by Barclay's Wealth. (Text below copied from a blog posting about it - the report itself may be found here:
What caught my attention was Strategy #1, which I'v seen other folks post about in other contexts as well. It just seems to me to be an *terrible* strategy. It's up there with the idea of buying load mutual funds as a way to trick yourself into not trading frequently because of the costs - it's just a bad idea.
(There may be other reasons to buy illiquid investments - perhaps the best is if it's intended to be a very long-term holding and the illiquid nature leads to great low-price opportunities to buy from someone who is under pressure to sell)
The others are mostly pretty good strategies. I especially like #3 and #5 - rules and cooling-off-periods. The example of a rule they provide may actually be controversial (ie. to a total-return portfolio management style), but the idea of rules - a system - is great.
--david
The report identified seven self-control strategies to help people counter their tendencies to make bad financial decisions:
- Limit the options. Purchase illiquid investments to avoid the urge to sell investments when the market is falling.
- Avoidance. Avoid information about how the market or portfolio is performing in order to stick to a long-term investment strategy.
- Rules. Establish and use rules to help make better financial decisions, such as spend only out of income and never out of capital.
- Deadlines. Set financial deadlines. For example, aim to save a certain amount of money by the end of the year.
- Cool off. Wait a few days after making a big financial decision before executing it.
- Delegation. Delegate financial decisions to others, such as allowing an investment adviser to manage your portfolio.
- Other people. Use other people to help reach financial goals. An example would be meeting with a financial adviser to make and execute a financial plan.