4 Mistakes Investors Make

Let’s look at the four biggest mistakes investors make when investing their money for future retirement, and more importantly… why avoiding these mistakes is crucial for securing a comfortable retirement.

Mistake #1: Not Starting Early Enough

You know what they say, the early bird gets the worm...and the comfortable retirement! According to Fidelity Investments, one in five Americans have no retirement savings at all, and nearly half of all Americans have less than $10,000 saved for retirement. Can’t we do better than that? I think we can… Bloomberg reports that the median retirement savings for American households is only $60,000. That might sound like a lot, but when you consider that the average retiree will spend about $46,000 per year in retirement, that money won't last very long. So start saving early, and don't let your retirement nest egg go up in smoke.

Mistake #2: Not Diversifying Your Portfolio

You don't want to put all your eggs in one basket, or in this case, all your investments in one asset class. The Wall Street Journal reports that many investors put all their eggs in one basket by investing solely in the stock market. While stocks can provide great returns, they also come with significant risk. Diversifying your portfolio can help to mitigate that risk by spreading your investments across a variety of assets, such as stocks, bonds, and real estate, and other alternative asset classes. Don’t be fooled however in thinking that diversification means having your money with 3 different financial advisers as an example. It simply doesn’t work unless all 3 are coordinated. Most often all 3 advisors are going to the market for your portfolio investments and most likely in similar or even the same stuff as each other.

Another fact about diversification comes from Fidelity, which found that investors who diversify their portfolio see better returns over the long term. According to Fidelity's analysis, a diversified portfolio returned an average of 8.3% over the past 35 years, while a portfolio consisting only of stocks returned an average of 7.3%. Who doesn't want to earn more money for retirement?

Mistake #3: Trying to Time the Market

Timing is everything, they say. But when it comes to the stock market, it's more like "timing is nothing." Many investors make the mistake of trying to time the market, which can be costly in the long run. According to Bloomberg, investors who try to time the market by buying and selling stocks at the right time often end up losing money. And let's face it, we're not all Warren Buffet, so trying to beat the market is like trying to catch a unicorn.

The Wall Street Journal reports that trying to time the market can lead to missed opportunities. In fact, a study by Dalbar found that the average investor earned just 2.6% per year over the past 20 years, while the S&P 500 returned an average of 6.4% over the same period. That's a big difference, folks. So, don't try to outsmart the market, just stay disciplined and keep a long-term perspective. Oh and work with an advisor!

Mistake #4: Letting Emotions Drive Investment Decisions

Investing can be emotional, especially when you see your hard-earned money go up and down with the stock market. But letting emotions drive investment decisions is a big mistake. According to the Wall Street Journal, investors often make emotional decisions based on fear or greed, which can lead to poor investment choices. And we all know what happens when you make decisions based on fear or greed: you end up with a lot of regret and a little bit of money.

Bloomberg reports that investors who let their emotions drive their decisions often buy high and sell low, which can result in significant losses. In fact, a study by Dalbar found that the average investor's returns were significantly lower than the market returns due to emotional investment decisions. The study found that over a 20-year period, the average investor underperformed the S&P 500 by nearly 4%.

So, how can you avoid making emotional investment decisions? One way is to have a clear investment strategy and stick to it. Don't let market volatility or short-term trends sway you from your long-term goals. Remember, investing for retirement is a marathon, not a sprint. (Oh, and work with an adviser…did I say that already?) Yes, even if you don’t believe working with an adviser will get your better performance on your investments vs. what you could do on your own, there is a benefit to having a relationship that is agnostic of your feelings and can help you navigate the behavioral finances issues you’ll need to navigate…that is, unless you are a robot.

Folks, when it comes to investing for retirement, avoiding these four mistakes is key: start early, diversify your portfolio, don't try to time the market, and don't let emotions drive your investment decisions. By avoiding these mistakes, you can help secure a comfortable retirement for yourself and your loved ones.

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Bradley Ruh Owner, Financial Adviser

Bibliography for the citations used:

Fidelity Investments. (2021). Retirement Savings Guidelines. https://www.fidelity.com/viewpoints/retirement/retirement-savings-guidelines

Bloomberg. (2021). Median Retirement Savings in America: How Do You Compare? https://www.bloomberg.com/news/articles/2021-05-11/median-retirement-savings-in-america-how-do-you-compare

The Wall Street Journal. (2021). The Biggest Mistakes Investors Make. https://www.wsj.com/articles/the-biggest-mistakes-investors-make-1533169200

Fidelity Investments. (2019). Diversification: The Importance of Asset Allocation. https://www.fidelity.com/viewpoints/investing-ideas/diversification-importance-of-asset-allocation

Dalbar. (2021). 2020 Quantitative Analysis of Investor Behavior. https://www.dalbar.com/research/2020-quantitative-analysis-of-investor-behavior

This material is for general informational purposes only and was produced by Action Financial Strategies, LLC. Life insurance is subject to underwriting. No coverage exists unless a policy is issued and the required premium is paid. Neither Action Financial Strategies nor NYLIFE Securities LLC or its affiliates provide tax, legal, or accounting advice. For advice on such matters, consult your own professional counsel.

Brian Ruh is a Member Agent of the Nautilus Group®, a Service of New York Life Insurance Company. Brian Ruh CA insurance license #OB66341. Brian and Bradley Ruh are collectively Registered Representatives of and offer securities products and services through NYLIFE Securities LLC. Member FINRA/SIPC, a Licensed Insurance Agency 999 Fourier Drive, Suite 300, Madison, WI 53717. (608)831-4416. Brian and Bradley Ruh are also collectively registered as Investment Adviser Representatives with Eagle Strategies LLC, a Registered Investment Adviser. Action Financial Strategies is not owned or operated by NYLIFE Securities or its affiliates.
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