Whether someone has $50,000 or $5,000,000 to invest, there are several investment pitfalls that any investor can fall into. One of our goals as financial professionals is to help clients avoid these pitfalls, which could be very costly. We have come across many mistakes and firmly believe that it could be much easier and less expensive to learn from others' mistakes, rather than make them yourself.
Over the years, we have found the following items to be the most common investing mistakes we see investors experience. If you feel that you are or have been affected by any of these, please contact us and we would be happy to reassess your personal financial situation.
Unclear Goals
Most investors attempt to make the most of their investments. Being proactive and having clear goals and objectives in mind can help you optimize your situation. Benjamin Franklin coined the phrase, “If you fail to plan, you plan to fail,” and this holds merit when it comes to your investing strategy.
Once you have determined your goal, creating a comprehensive plan that will help you weather anything that the equity markets can bring is recommended. The last few years have taught investors that anything can happen so it’s healthy to plan for the possibility of expecting the unexpected. Not having a well devised plan that considers your risk tolerance, investment horizons, and investing habits, could reduce your ability to optimize your investments or worse, cost you over time.
Your clear goals will help you stay focused and help dissuade you from going off course in times of uncertainty and volatility.
Choosing Your Investment Strategies Based on Someone Else's Situation
“This is what my smart friend is doing,” is usually not a phrase that should follow when choosing your investment strategy. It’s easy to look at what someone else is doing and, if they are having success with it, be tempted to do something similar. However, their situation may be entirely different than yours: their starting point of entry could vary; their short-term and long-term needs could be different; they could have a higher risk tolerance; and their time horizon could be longer or shorter than yours. There are too many variables to entertain a strategy because, “someone else is doing it.” We understand that the infamous pressure of FOMO (Fear of Missing Out) could rear its ugly head when someone is having success with one strategy, but jumping on board that strategy without taking into consideration your unique situation could be a costly mistake. This is sometimes referred to as the bandwagon effect – a phenomenon in which people do something primarily because other people are doing it.
Choosing investment strategies should involve critical consideration and thinking. With the help of an investment professional, do your due diligence before making any investment strategy changes or moves.
Looking at Account Balances Too Often
Looking at your investment balances too often can lead to an unhealthy habit. The thing to keep in mind is that investing is a long-term activity, and day-to-day changes should not affect your strategy and decisions. Checking too often can lead to stress and reactive and impulsive decisions. Well devised plans can take time and being impatient can prove to be harmful.
Listening to the Media
Many times, it’s best to avoid or limit media exposure. This is worth repeating: avoid or limit media exposure!
The media knows very well that fear sells and will go to great lengths to keep you in their audience. Unfortunately, the media gets more attention when it is filled with fear-mongering and negative news that can influence even the most seemingly impenetrable viewers.
Focus on your personal goals and objectives and don’t let media outlets reduce your confidence or commitment to your well-devised plan.
Making Emotional Decisions About Investments
We each know our true investing behavior and it can be easy to make emotion-based decisions. Whether it is the media, our next-door neighbor, or just a hunch, making an emotionally triggered decision on your investments is not a sustainable nor sound practice. This is where having a well-devised plan can help. Determining your goals, understanding how to weather obstacles during your financial journey, and having the partnership with a qualified wealth manager can help deter you from making emotionally based investment decisions.
Tax Ramifications
Understanding the tax ramifications of investment moves should be an integral and vital part of your financial plan. Taxes can significantly affect the outcome and real return of your investments. A knowledgeable professional who is apprised of ever-changing tax laws and how they can affect their clients can help navigate these ramifications.
Overestimating Your Ability and Underestimating the Value of a Professional
In the same thread as the previous pitfall, it is important to seek the help of those who are vetted, educated, and are seasoned financial professionals. For example, we all may be able to unclog the bathroom sink, but if there is a major plumbing issue, it’s more than likely most of us will seek the help of a plumbing specialist, not just a handy person. Why wouldn’t you treat your hard-earned money in the same fashion? We may all be able to balance our checkbooks, but choosing an investment to place your hard-earned money into is more complicated with many variables that need to be considered. This is where seeking the help of a financial professional who not only understands the analytical side of investment planning, but also understands how to navigate the unexpected such as volatility in the markets, health crises, changing tax laws, and of course, let’s not forget massive emergencies that can test even the best investors, like the recent pandemic.
While we may all want to feel capable in our investing proficiency, seeking out a qualified professional can help you navigate the nuances of investing to help you pursue your financial goals with confidence.
Not Understanding that Equities Are Long-term Investments
Placing your money into an investment and taking the chance that it will accumulate even more wealth can be intimidating, let alone scary. History has shown that those who understand investing is a long-term activity and therefore chose a plan that focuses on potential long-term returns have reaped results.
Equities are long-term investments. Even with downturns, long-term investors who have stayed with quality investments in the market for over 10, 20, 30 or 40 years have been rewarded with considerable gains.
We Are Here to Help!
We truly value our clients. We strive to understand the objective of each individual so we can create an ideal plan and help our clients avoid these common investing pitfalls.
A good financial professional can help make your journey easier. Our goal is to understand our clients’ needs and then try to create plans to address those needs. If you’d like to have an assessment of your investment portfolio, tax situation, and overall financial picture, please call us to set up a complimentary financial check-up.
Disclosure:
Advisory Services offered through Materetsky Financial Group Inc., a Registered Investment Advisor. Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. Private Client Services and Materetsky Financial Group Inc. are unaffiliated entities. All insurance products are offered through unaffiliated insurance companies. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Materetsky Financial Group, Inc. [“Materetsky]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Materetsky. Materetsky is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Materetsky’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.materetsky.com. Please Remember: If you are a Materetsky client, please contact Materetsky, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian. Note: The views stated in this letter are not necessarily the opinion of broker/dealer, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. The modern design of the S&P 500 stock index was first launched in 1957. Performance prior to 1957 incorporates the performance of the predecessor index, the S&P 90. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. CDs are FDIC Insured and offer a fixed rate of return if held to maturity. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. There is no guarantee that a diversified portfolio will enhance overall returns out outperform a non-diversified portfolio. Diversification does not protect against market risk. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. There is no guarantee that a diversified portfolio will enhance overall returns out outperform a non-diversified portfolio. Diversification does not protect against market risk.
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