By Dan Ferris in DailyWealth:

Right now, two severe problems are affecting the average investor.

These problems will doom the average investor to mediocrity at best, and a lifetime of financial problems at worst.

One problem is extreme, rosy optimism.

While I'm a "glass half full" guy, years of investment experience has taught me that wild optimism is a handicap when it comes to investing. It blinds you to risk. It drives you to pay more for assets than they're actually worth.

Take one of the most comprehensive investor sentiment studies, the American Association of Individual Investors Sentiment Survey. This survey tracks the bullishness and bearishness of 140 different investment newsletters. The survey is now 49% bullish and just 15% bearish.

That's the highest bullish rating since right before the crash of 1987, which occurred after a two-year, 150% stock market rally. Investors are more bullish today than they've been in over two decades. The last time investors were this bullish, the Dow Jones Industrials Average lost 22% in one day. Big one-day crashes are rare, but you should be wary of most stocks right now based on peaking investor sentiment alone. Because this peaking optimism produces excessive valuations...

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