Avoid these common investment blunders
It’s no secret: Investors make plenty of mistakes. You’re probably thinking the biggest errors entail picking the wrong stock, remaining invested too long while a correction takes hold or missing an opportunity for a stock that ends up rocketing higher.
However, none of those are typically the biggest catastrophes that can torpedo your retirement. Here are some of the biggest mistakes and misconceptions our firm encounters. Have you made any of these common investing errors?
Tolerating an adviser who does nothing for you. We routinely see new clients who have worked with an adviser for years, yet don’t have much to show for it. Sure, there might be some stocks or funds in an account, but often, nobody has balanced the portfolio or reviewed the risk levels in years.
In these cases, we almost never see where the adviser has done a comprehensive plan that incorporates cash flow management, tax strategy, charitable giving, estate planning, health care planning or other key elements that result in financial wellness. Clients are paying some kind of management fee but receiving none of the services and ongoing consulting that’s so necessary to achieve a successful retirement.
If you are working with an adviser who parks some securities in an account and doesn’t do much else, ask yourself why you are still giving them your hard-earned money? There are many firms out there that provide a much higher level of service.
Failing to understand the role of investments for your retirement. This mistake comes in several versions. It’s a problem when you own a bunch of “stuff ” and have no idea what it is, why it’s there, how much it costs or what it’s supposed to do for you.
It’s also a problem when people shy away from long-term investing because they confuse it with short-term speculation, or “playing the market.” Reality is: Investing in stocks is necessary to stay ahead of inflation over the next decades. Investing in bonds is necessary to mitigate stock market volatility.
Retirement investing is a data-driven activity, designed to achieve a particular outcome. It has zero relationship to stock picking and market timing, which have short-term horizons.
Many people fail to develop an investment plan for their retirement because they tell themselves they don’t understand the market or finances. But they will hire a coach or instructor to help them in other areas they don’t yet understand, such as painting or a new sport. Investing is no different. Your neighbor probably doesn’t know any more about his or her portfolio than you do.
People who get help with their retirement and investment plan have a much greater chance of achieving a good outcome — provided the adviser is one who adheres to the fiduciary duty at all times, and offers ongoing planning and other services.
Tolerating a portfolio that’s wrong for you. This happens when somebody — either you or a broker or possibly a parent — made investments based on
past performance or something that was hot at one time.
Typically, we see one of two things: Either an investor has a portfolio that looks like it stepped out of the 1980s, with a collection of large American companies (and not even the companies that grew to be the largest in the past 15 years) and not much else. No international, no bonds, no small stocks.
The second thing we see is a portfolio weighed down by cash that has been languishing, doing absolutely nothing. Often, a nonfiduciary broker will even charge a management fee to hold huge sums in cash. That should be completely unacceptable, but we see it all the time.
Both those situations could reduce your chances of a secure retirement, simply because the investments were not organized and allocated in the best way for you.
Not understanding the importance of longevity. A growing number of people are living to 100, or at least their 90s. About 80 percent of these centenarians and octogenarians are women.
In addition, better educated people and higher earners have a greater chance of living longer. Even if you are not particularly eager to live to 100, you need to be prepared.
Where will you live in your later years? Who will take care of you or help with things like grocery shopping, errands or driving you to medical appointments? Will you run out of money during retirement? If you are reasonably healthy, it’s prudent to assume a long life span.
As you see, the truly difficult challenges about retirement investing go far beyond picking the right stock or trying to guess whether the market will go up or down tomorrow. Sadly, many people make these very common mistakes and learn too late that they risk running out of money in retirement.
If you are reading this, it’s very likely you can still make changes to ensure retirement success.
Kate Stalter, founder of the independent fiduciary firm Better Money Decisions, helps people throughout Northern New Mexico plan for retirement. For a free portfolio review and consultation, contact her at 844-507-0961, ext. 702, or kate@ bettermoneydecisions.com.