USA TODAY US Edition

When in­vest­ing, here’s how to re­cover from mis­takes

- Pete the Plan­ner Peter Dunn Peter Dunn is an au­thor, speaker and ra­dio host, and he has a free pod­cast: “Mil­lion Dol­lar Plan.” Productivity · Dating Tips for Men · Violence Prevention · Social Interaction · Lifestyle · Journaling · Career · Personal Safety · Money Tips · Personal Finance · Lifehacks · Driving Advice · Time Management · Business · Charleston, SC · South Carolina · Plan B

Dear Pete,

I’m em­bar­rassed to say I pan­icked at the end of March and sold all my in­vest­ments and went to cash. Be­fore I knew it, the mar­ket was on the re­bound. I kept as­sum­ing the mar­ket would crash again and give me a chance to buy back in, but when­ever the mar­ket went down, I never thought it was enough of a de­cline to jus­tify buy­ing back in. I’m 55 years old and have about $600,000, down from $960,000. Did I just ruin ev­ery­thing I’ve worked for? I’m re­ally up­set and don’t know what to do. Richard

Charleston, S.C.

I’m ter­ri­bly sorry you’re in this sit­u­a­tion, Richard.

I know how aw­ful you must feel, but frankly, there’s noth­ing you can do about the op­por­tu­nity and money lost. It will take awhile to come to terms with this, but the sooner you do, the sooner you can move on and put to­gether a fea­si­ble Plan B.

In fact, try­ing to re­verse his­tory is both im­pos­si­ble and a com­plete waste of time. Mourn the money lost and move for­ward

Plan B is so in­tense and ro­bust, you won’t have the lux­ury or even the time to look back on what could have been.

First things first: You have a ma­jor risk-tol­er­ance prob­lem. Peo­ple panic sell for lots of rea­sons, but the pri­mary rea­son is be­cause they’ve in­vested out­side of their risk tol­er­ance.

Your risk tol­er­ance is the amount of volatil­ity you’re will­ing to en­dure, prior to suf­fer­ing un­due stress and anx­i­ety, which even­tu­ally can lead to ir­ra­tional trad­ing.

In other words, your risk tol­er­ance will help you de­ter­mine what in­vest­ments to choose so when the mar­ket gets rocky, you aren’t in­clined to make sud­den changes. Need­less to say, you didn’t have the right in­vest­ments se­lected for your par­tic­u­lar abil­ity to tol­er­ate risk and volatil­ity.

I could tell you to stay calm un­til I’m blue in the face, but my di­rec­tive is point­less if you’re not in­vest­ing in ac­cor­dance with your risk tol­er­ance.

Hav­ing had this same con­ver­sa­tion for over two decades, don’t fall for the urge to dis­miss this very im­por­tant first step.

Not only do you need to change the way you in­vested the first time, but you must make sure you don’t try to take more risk to make up for lost time. That’s a very com­mon sec­ond mis­take,

which can per­ma­nently seal your fate of a failed re­tire­ment.

Next, you have to get your money out of cash. I’m not nec­es­sar­ily say­ing you need to get di­rectly back into the stock mar­ket, but you’re go­ing to need your money to earn more than close to a zero per­cent rate of re­turn.

This is also my op­por­tu­nity to tell you how badly you need a good fi­nan­cial ad­viser. Not only will a good ad­viser help you de­ter­mine your risk tol­er­ance, but that per­son will also help you choose in­vest­ments that will align with this new­found risk tol­er­ance. Don’t get fur­ther caught up with try­ing to time the mar­ket when get­ting back in – that think­ing is what got you into this jam in the first place.

Now you need to de­ter­mine how much money you’ll be able to in­vest over the re­main­ing years of your ca­reer. Your new ad­viser will eas­ily be able to put to­gether pro­jec­tions to help you un­der­stand what sort of nest egg you’ll be work­ing with on your cho­sen re­tire­ment date. That’s just math, and you should re­sist the urge to over­com­pli­cate that process.

Now for the hard parts.

First, what­ever in­come your ad­viser tells you will be avail­able via your nest egg for re­tire­ment, you need to be­gin ad­just­ing your cur­rent life­style to meet that level of in­come sooner rather than later.

Eas­ing into that ad­justed re­tire­ment life­style is much more fea­si­ble than try­ing to fig­ure it out once you re­tire. Un­for­tu­nately, it’s ad­mit­tedly tough to find the mo­ti­va­tion to do that now. But when you stop and think about it, wait­ing to ad­just your life­style un­til later makes the task much more dif­fi­cult.

The sec­ond “hard part” is for­giv­ing your­self.

You messed up. No one died. It’s over. And now you have to ex­tend your­self some grace. That’s re­ally hard to do; much harder than ad­just­ing your life­style to match your fu­ture re­tire­ment in­come. But hope­fully, as time passes, you’re able to come to terms with your new re­al­ity and en­joy a peace­ful re­tire­ment.

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 ?? GETTY IMAGES ?? Step 1: Don’t panic.
GETTY IMAGES Step 1: Don’t panic.

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