The Prudent Investor Blog

A Siren's Call is a Powerful Temptation to Derail Prudent Investors (part 1)

Posted by David Plaisance on Wed, Jul 13, 2016 @ 08:32 AM

In ancient mythology, the Sirens were beautiful but dangerous creatures that lured the sailors with their beautiful voices to their doom, causing the ships to crash on the reefs near their island.


We often encounter Sirens in our journey as prudent investors. These Sirens can be catastrophic to our long term investment goals. Below are a list of potential Sirens that you must avoid for long term success. The temptation of these Sirens can be unbelievably strong so please hede this warning.

  1. Short Term Returns - focusing only on short term returns can lead to poor decisions in an investment portfolio. We have seen brokers lure investors away from prudent strategies by showing them returns over a 2 - 5 year period. It is important that you understand return based on your individual time horizon. If your time horizon is 30 years, then making a decision based on a 2 - 5 year period may not be prudent. The other thing you must consider when looking at returns is the amount or risk you take to get the returns. The strategy you use should be based on the risk you need to take to achieve your overall objectives and not just on some mythical projected return number.
  2. The Television - prudent portfolios should be diversified globally with 10 - 12 different asset classes. Included in these asset classes should be the S&P 500 and Dow Jones Index. When you are watching the news, these (along with the NASDAQ) are the only asset classes you see reported. This is because these are the largest companies on the planet. This means that you have 8 - 10 other asset classes that may be doing better (or worse) than what you see on television. We are not saying to stop watching television, but please remember that making decisions based on what you see and hear on television may not be prudent thing to do.
  3. Other People in Your Life - humans are biased. We are biased when it comes to the people we trust. We have heard many people say things similar to, "My brother in law recommended that brokerage firm so I decided to go with them. I trust him and he would never lead me down the wrong path." The issue with this is that your family member's objectives may not be the same as yours. Prudent strategies are based on the individual investor's personal objectives. Making investment decisions because a family member recommends someone may not be the prudent way to determine who will manage your money. This is the easy (and often most costly) way to make decisions. The hard way is to evaluate the reasoning, logic and assumptions of that advisor/broker.

Our investment journey is a long one. It can be filled with many different temptations. Advisors/Brokers are trained to prey on your emotions because this is how they can get you to move from sound prudent investment strategies. And every time you move your money someone gets paid handsomely. Note: this can happen with your current advisor/broker making changes to the investments in your portfolio. And, you are the one stuck with the bill, even if you do not know it.

In conclusion, please hede this warning. You will encounter many different sirens along your journey of investing. The key is to not let them lure you away from a sound, prudent investment strategy designed to achieve your personal investment goals.

This is not an all inclusive list, but it will give you a great start. Our next blog will address 3 more sirens: annuities, guarantees, radio advertisements.

If you want to know more about prudent investment strategies to see if you currently have one or if one is right for you, please contact us at

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