The Many Phases of Investing Decisions. If you truly believe and have faith, maybe it will be so. That seems to be the sentiment of small investors during the month of April as $14 billion poured back into US stock mutual funds, the biggest inflow in more than a year.

Perhaps those decisions to jump back in were made in reaction to the end of the war in Iraq, or perhaps because of falling oil prices, or perhaps because US consumer confidence has risen. Whatever the reason, the US small investor is no longer sitting totally on the Wall Street fence.

That's there, this is here. What should investors in Bermuda do? It's worth a few minutes to think rationally about why you should invest.

Herding and the Sheep Syndrome. If it looks right, feels right, and everyone is doing it, it must be right. Are any investment decisions rational?

Maybe you just think it is time for you to invest again because what is everyone else doing? In reality, the handling of money for most consumers is a highly emotional issue.

Investing in capital markets may be as irrational as hearing about a friend starting to invest again. If he/she is a pillar of the community and the act of investing is translated into the hip or politically correct thing to do, many consumers will do just that, often without a second thought.

Not a logical way to manage your money and very much a following the sheep(ish) route, if your investment sours.

Perception Deception and Reputational Risk. Subliminal peer pressure can be insidious and very, very difficult to resist. In 1998, fraudsters sold thousands of small consumers into Global Prosperity (GB) under the hush-hush claim that they all were the very first investors to be allowed to participate in GB's initial public offering (IPO) - you all may still remember the crazy climbs in value when IPOs were launched in the late 1990s, only to crash months later. Many legitimate Bermudians truly believed this was a legitimate investment, travelling on their own dime to one of GB's sites in Mexico. Four years later, the IPO still had not happened (and never was going to) while the swindlers face US jail time for income tax fraud. Good people deceived; good money gone and those who recommended the investment feeling pretty devastated. How do you know what to do with your money today?

Media Response. It's called financial noise. There is so much of it out there today that we all tend to fall back into herding instincts discussed above. Consumers often feel the need to 'do something' when they hear about new investment information, even when personal circumstances dictate that doing nothing is the best idea. In one study, investors were divided into two groups and told to make investment decisions about a specific stock. One group received streams of news about the stock; the other group received none. Guess what, the non-informed group outperformed the group flooded with information. Conclusion - more information does not necessarily make a better investor and can be counterproductive to investment success.

Optimism and overconfidence. People have a common tendency to think that only good things will happen to them and bad things happen to other people. Translated into investment activity, investors often act on a good investment idea based upon inherent optimism and overconfidence, the practical aspect of which can often decimate a perfectly decent savings routine. Wishing just will not make it so. Yet, according to thestreet.com this week optimism may be a self-fulfilling prophecy. The more people invest, the more enthusiastic the response and the market is moved upward by sheer momentum. Many market watcher signs are turning positive, particularly earnings reports and predictions on US economic growth for the rest of the year.

What do all those vignettes have to do with investing? If you understand anything about human nature, all of the above discussions centre on us. We are all so very human. We can't help exhibit behavioural and emotional characteristics that can be plotted (on graphs even) easily by rational analytical investment salesmen types. The good types, called experienced ethical licensed (these are key attributes) financial advisors, can help you invest appropriately and in the long-term successfully. The bad ones are, in a way, the best of the worst in their ability to manipulate your human nature using all of the techniques described above. They can masters at successfully divesting you of your life savings while actually making you feel good about handing over your money! Be forewarned that we all will make an emotional investment decision before a rational one; the key is turn past failures into future success stories.

So what should you be doing? Investors are moving their money out of money markets back into capital investments. It is predicted that US President George W. Bush's tax cut will provide some much needed stimulus to the US economy.

We don't have a tax cut here (even though we have hidden taxes). Even so, perhaps you should start thinking of long-term investing again. The classic saying, "a rising tide lifts all boats" may be true again.

Next week we will review some investments that maybe best bets for those wanting to get their feet wet.

Readers, Bermuda is made of hundreds of success stories. I am looking for success stories from individuals who created businesses, completed educations or achieved career milestones against all odds except for their drive, determination, courage and support of family and friends. These are stories that need to be told. They inspire and motivate all of us. If you have such a story in your family, please contact me on a confidential basis.

Martha Harris Myron CPA CFP is a Bermudian, a Certified Financial Planner (US licence) practitioner and VP, Personal Financial Services at Bank of Bermuda. She holds a NASD Series 7 licence, and formerly owned a United States financial services practice providing financial solutions for 400 individual and corporate clients. Confidential e-mail can be directed to marthamyron@northrock.bm

The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda. Under no circumstances is this advice to be taken as a recommendation to buy or sell investment products or as a promotion for financial plans. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.