When you have a career, a family, and a home to manage, it’s easy to lose track of your investment accounts. Is your portfolio aligned with your risk tolerance? Do you have enough diversification across each asset class? Are you saving enough? These questions and more can help you get back on track with managing your finances. By working with an experienced financial advisor, you can tailor your portfolio to match your growth and income needs. Monitor your accounts regularly to avoid these 6 Common Investor Mistakes:
- Buying high, selling low.
As the old adage goes, you should “buy low, sell high.” But for many investors, this is easier said than done. You see a sinking ship, you want to jump off, right? Sometimes that may be the case, but for the most part, you need to stay the course. Investments don’t often sink like ships – they ride many waves of highs and lows. As long as you have carefully planned a diversified portfolio, and are consulting with your financial advisor regularly, you should remember that each element of your overall portfolio plays a crucial part in its diversification. While some investments may go down, opposite investments may be going up. And since the stock market is fickle, your failing investment this year, may be winning next year. Stay the course and trust the process.
- Thinking you’re diversified, but you’re really not.
If you believe that your portfolio is diversified because it contains different investments, with different companies, you may want a second set of eyes to double check. Many times, different mutual funds or annuities may actually be investing in the same underlying stocks and bonds – which is counter-productive when it comes to real diversification. Work with your advisor to make sure that you’re not inadvertently putting all your eggs in one basket. It’s not necessary to have many accounts with different advisors either; an experienced advisor can create a diversified portfolio within one account, without the hassle of different online logins and separate account statements from several companies.
- Failing to review your account holdings regularly.
With the exception of Target Date funds that adjust to be more conservative over the years, most investments are not “set it and forget it.” Over time, your needs, goals, and risk tolerance can change. You should review your account at least annually to make sure your portfolio still matches your overall vision. Your underlying holdings should be tracked for their performance, and if they are not meeting your criteria for growth, income, and volatility, you and your advisor need to consider making replacements. While you don’t need to make changes every time an investment loses money, if there’s a negative pattern over time, it’s a good idea to consider some substitutions.
- Not saving as much as you should.
This mistake is not always a mistake; you can only save what you can realistically afford. But your advisor should be able to help you create retirement income projections so that you know how much you should be saving to meet your target income goals. Knowledge is power, so even if your suggested savings rate is not currently affordable, at least you have a definite goal to work toward. Each time you get a cost-of-living pay raise, consider increasing your savings rate to your 401(k) or other retirement plan. Small increases in your savings can really make a big difference over time.
- Taking too much risk, or not enough.
Measuring your risk tolerance is a tricky balancing act. Quite simply, no one wants to lose money, ever. But, there are times when investing in more volatile asset classes makes sense. If you’re investing for a long-term goal such as retirement, you may have plenty of time to ride out volatility to achieve an overall higher gain than other more conservative assets. Typically, there is a risk-reward trade-off in investing, and you need to consider your goals for growth, your stomach for market highs and lows, and your time horizon. In other cases, you may be taking an unnecessary level of risk if you are closer to retirement and planning to begin taking income from the portfolio in the near-term. As always, work with your advisor to reevaluate your needs regularly.
- Not titling your accounts to match your estate plan.
If you’ve worked with an attorney to draft a careful estate plan, make sure you’re also titling your accounts and real property to match it. If you intend some assets to be held in trust, make sure the accounts are not titled in your name, but list the trust as the owner. For beneficiary-designated accounts, you may also consider whether or not you should list a trust as the beneficiary of those assets in the event of your death. Work with your financial advisor and attorney to make sure that your investment plan is in line with your estate plan.
By double-checking your investment plan and keeping your financial goals top-of-mind, you can make sure to avoid common mistakes. Reach out to your advisor to set a regular investment review today.