Avoiding big mistakes can have a significant impact on a long-term investment. This impact may be more significant than the performance of a specific fund, stock, bond, or alternative investment. More often, big mistakes occur when investors begin making decisions based on emotions such as fear and greed, rather than using logic and objectivity when making their decisions about investments. For these reasons, it is important for investors to have a coach on their side, such as a financial professional, to help guide them during challenging times such as we experienced during the 2008 recession. There are many mistakes that can occur, but if the big mistakes can be avoided, it can make a huge difference on an investor’s recovery. Here are three that are critical: failing to plan, waiting for the right moment to start investing, and buying high and selling low.
Many of us have spent countless hours planning for vacations, weddings, graduations, and having children. However, failing to plan for retirement will certainly present major issues for investors when retirement is near. Having a plan in place and a purpose of investing is critical. This is usually broken down in two parts. First, the building of wealth and second the disbursement of wealth. During the wealth-building process, investors will need to consider portfolio growth, time frame of investing, risk tolerance, and tax consequences. During an investor’s disbursement phase, our investment objectives will change and strategies will be tailored toward capital preservation rather than growth. It is not easy and takes a lot of patience, yet having a plan in place to build wealth, and managing it properly during the distribution phase, will improve the odds of having a secure retirement.
When it comes to investing for your retirement, the best time to start is now. Whether you’re a new investor or experienced investor, time is the most important factor you can have on your side. The earlier you start, the easier it is to save more, ride out the shifts of economic changes, and utilize compound interest to your advantage. By starting later in life, investors may fall short of their needs. The later you start the more you will need to save, reduce discretionary spending, and work longer than expected. For these reasons, the earlier you start saving the better the odds of saving enough for retirement.
Emotional investing usually ends on a bad note. Investors who buy and sell on emotions typically buy high and sell low. We have seen this time and time again. The interesting part about this is that most of the time our objective is to get out before we lose or to get in to gain something. In most cases, we end up doing the opposite. We get out before the market shifts because of fear and don’t get in until we are comfortable, when it’s too late. This is why having a plan in place that includes logic and objective decision making is crucial. Usually, a well balanced portfolio with rebalancing will allow investors to meet their goals and minimize major swings in their portfolios. Avoiding these mistakes does take planning. In many cases, working with a financial professional can help you be more objective and reach your retirement goals.