Broker Check


October 22, 2020

Just as to-do lists can be a key part of planning, do-not-do lists can be helpful reminders to avoid mistakes that others have made.

1. Impulse investing.

Avoid investing based on a whim or a tip. Don’t invest a certain way just because a friend or colleague does. Instead, be thoughtful and strategic. Remember that as an investor, you're planning for the long term. In today's world of social media experts or the 24 hour news cycle, it can be easy to feel distracted or like you're missing out. There's nothing wrong with having some "Play Money", but just make sure you're keeping your plan in place and not putting things at risk that don't need to be. 

2. Lacking an overall plan or strategy.

Don’t look at financial decisions in isolation. Think about how they affect or are affected by other elements. For example, when deciding on your asset allocation, keep all of your investments in mind, not just those in a particular account. 

3. Not paying yourself first.

Saving should be your top priority. Put money aside with every paycheck. It’s easy to do through payroll deduction or a similar automatic system. You are your most important bill and should be treated that way. Look at your overall situation with an understanding of where you would like to be and make sure you fit "YOU" into that budget. Compounding works wonders, but it all starts with you taking the step to save. 

4. Not taking advantage of time.

Compound growth is like a gift from Father Time. If you wait too long to save for retirement, you will have lost tremendous potential growth. As a result, you might have to save significantly more later in your career, when many financial needs compete for your attention and your budget. Late is better than never at any point in your life, but time will be your best friend when it comes to your investing goals. 

5. Not paying attention to risk.

Risk and return tend to go hand-in-hand. Investments that offer higher potential returns, such as stocks, have elevated levels of risk. In contrast, conservative investments, such as money market accounts or stable-value investments, fluctuate very little, but they offer limited growth potential. Think about risks, as well as expected returns.

6. Not diversifying.

The more concentrated your investments, the higher the risk of a substantial loss. Manage your risk by owning a variety of investments, and don’t invest too heavily in your employer’s stock when you are already well invested with your employment and salary. It's also important to remember that nothing works all the time whether thats tech stocks or emerging markets. Diversification helps to balance the ebbs and flows of the markets to help provide a more predictable path towards your financial future.

7. Relying on someone else to handle your investments.

It’s fine to consult with someone whose opinion you respect, but be ready to question anyone’s suggestions. Ultimately, you must decide for yourself on the best strategy for your situation. This doesn't mean you shouldn't take others opinions into consideration, but whats important is that you ensure your decisions are made in your best interest. 

8. Not working with your spouse toward the same goals.

Couples should talk about their financial goals and coordinate their investing strategies and budgetary practices. Working as a team helps to make sure you both stay focused on your goals while also holding each other accountable. It's also important to make sure you both have an understanding of what you're working towards and how your working towards it so if something unexpected happens you or your spouse are well prepared for the path ahead. 

9. Not maximizing your retirement plan.

Your employer-sponsored retirement plan is one of your most important benefits. If you receive a matching contribution from your employer, contribute at least enough to the account to qualify for the full match. Anything less is like walking away from free money. One of the biggest impacts on your future is your time and savings so don't let free money pass you by that can be a strong contributor to both. Also, don't ignore the other tools in the box you can use like an IRA, ROTH or HSA(Health Savings Account) that you can use to maximize your savings. 

10. Cashing out or borrowing from your 401(k) account.

In a financial emergency, you might have no choice but to make an early withdrawal from your retirement account. But taking money from your account is like borrowing from your future to pay for your present needs. Look for alternatives before you resort to that. An important first step to avoid this is to ensure you have a plan that includes your emergency savings. If anything is certain in life, it's change and many times that comes when we don't expect it. We can't plan for everything in life, but we can do things like provide buffers for the unexpected with savings or other strategies. 

11. Ignoring tax or inflation when estimating your net retirement income.

For anything other than a tax-free account, such as a Roth IRA or Roth 401(k), you’ll owe taxes on your withdrawals. Similarly, remember that inflation will reduce your purchasing power. Taxes and inflation can be easy to ignore because we so often live in the now and how easy it is to say "I'll do that tomorrow" but the reality is that what we buy today will most likely cost more in the future. That's OK because if you plan right and invest appropriately, you should be well prepared to deal with these. Think about your asset allocation, does it make sense to save or convert savings to a ROTH, or is your plan taking the proper consideration into what your future should expect. 

12. Not following your investments.

Monitor your investments and make sure they are performing roughly as you expect them to do. If they are not, try to understand why, and be ready to make changes if you need to. This doesn't mean you should drive yourself crazy looking at your investments everyday to see if they are up or down, but you should be regularly reviewing your plan to see if its on track and what or if any changes should be made. 

Ultimately, one of the best ways to avoid mistakes is to have a plan that you can accomplish and that you feel comfortable about that fits your situation. Too often we read things about "How much you should save at this age" or "Invest in this and you could earn XXX". None of that matters when you understand your situation and where it can lead to. Look at where you are, understand what's important to you and what your ideal future would be (realistically) and develop a plan around that. 

Have question on what steps you should take or where you stand? Talk to your financial advisor or reach out to us. Our passion is to help our clients help prepare and live their future. 

1. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This material is for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.