Investing in your life for post-retirement is one of the most important things you can do for both yourself and your loved ones. And whether you’re retired, newly retired, or almost retired, knowing how to avoid costly mistakes with your investments is an important part of retiring comfortably.
After all, you’ve worked hard to enjoy a low-stress and rewarding retirement and shouldn’t fall victim to costly investing mistakes. However, even experienced investors can make avoidable mistakes if they aren’t careful.
Read on for some common investing mistakes and how to avoid making them.
Not Clearly Identifying Your Goals
Having clear goals is a crucial part of creating a successful investment strategy. Sure, everyone who invests wants to see high returns on those investments and make as much money as possible, but that alone isn’t an actual financial plan.
Think about your short-term goals, such as replacing the roof or taking a vacation. Your mid-term goals could be purchasing a new vehicle or saving for your children’s or grandchildren’s college expenses. Long-term goals would be purchasing your retirement home and overall retirement income you can live comfortably on, however far away that may seem!
Making Emotional Decisions
There’s no question that when it comes to your investments and your future, it’s difficult not to become emotional and take things personally. However, it’s important to look at things objectively when it comes to making important investment decisions.
This can sometimes mean letting go of bad investments without letting pride get in the way, or perhaps taking advice from your CERTIFIED FINANCIAL PLANNER™ Professional even when it’s not an investment strategy you have used before, or perhaps a stock you’re not familiar with. If you get too attached to one investment simply because you had a good experience previously, you could be setting yourself up for failure.
Some consider panic selling to be under the umbrella of an emotional decision regarding your investment strategy. This happens when you see a dip in the market or things are headed in a downward trend.
Considering that these drops and fluctuations can happen in both directions throughout a single market day, it’s best not to have a knee-jerk reaction to “sell, sell, sell” at the very first sign of lowered returns. In fact, if you sell too early without giving that investment time to rebound, you’re guaranteeing yourself a loss instead of waiting it out and potentially seeing a much better return.
Not Understanding Your Risk Tolerance
Your risk tolerance is summarized as the amount of risk you can take with your investments. As the old adage goes “high risk = high reward,” but depending on your risk tolerance, you may not be in an ideal position to take those big risks.
Depending on your financial situation, risk tolerance is unique to each individual and their wealth level, age until retirement and other factors. Simply put, if you don’t know how much risk your portfolio can take, you may sell stock too early (read: panic buying mentioned above) or hold on to risky stock too long and take an avoidable hit to your portfolio.
Failing to Diversify
Diversification is essential to any well-balanced financial investment plan. While you may be tempted to place the majority of your investments in a category that is currently or has previously performed well, you can’t guarantee that it will continue to do so. And if you have everything relying on it, you’re risking more than you could potentially gain. Instead, spread your investments between different investment types to maximize your earning potential from a well-diversified portfolio.
Having Unrealistic Expectations for Returns
Whether your idea of investing comes from Hollywood’s fast-talking stockbrokers or if you have a more grounded vision of what it means to invest in the market, having realistic expectations of your investment performance is essential to achieving success.
If you expect to be ultra-successful right away and be able to retire from that alone, you’ll be better off buying a lottery ticket and hoping to win the jackpot. Instead, speak to a CERTIFIED FINANCIAL PLANNER™ Professional such as Allen A. Osgood Jr. at Financial Freedom Fee-Only Wealth Management, to gain a better understanding of what to expect on average and how to create a financial plan. Although no one has a crystal ball, it helps to know a range of what you can expect to see on your investment activities.
Not Regularly Reviewing Your Investments
When it comes to investing, there’s no such thing as autopilot. Sure, you don’t have to monitor it every minute of every day, but if there is activity affecting your investments, you should be aware. While this is in no way advises panic selling, it’s essential that you know the general trend and direction of an investment in case you need to make changes before those trends negatively impact your investments.
As a rule, no matter how small, none of your investments should be left unchecked for an extended amount of time. By doing this from the very start of your financial journey, you can establish good habits that will only increase your investing savvy as the years go on.
Not Finding the Right Partner
While it may be tempting to go it alone when starting your investment journey, there are many benefits from finding the right CERTIFIED FINANCIAL PLANNER™ Professional from the very start. When looking at your choices and who to partner with, it’s very important to understand how they are compensated. Depending on the compensation method a financial advisor uses this may determine how they make recommendations for your investments.
For example, a fee-only, retainer-based compensation method means that your CERTIFIED FINANCIAL PLANNER™ Professional is paid by the hour or by a retainer and doesn’t consider AUM (Assets Under Management) when charging fees.
At Financial Freedom Fee-Only Wealth Management, we have over 30 years of experience working with high-net-worth individuals and couples. We are a fee-only, fiduciary, wealth management firm dedicated to helping our clients protect, grow, and maximize their wealth.
Contact us today for a complimentary consultation, and find out if we are the right fit for your needs.