Fortunately, you’re ahead of the curve by reading this blog. You’re likely already familiar with these five common pitfalls. However, for the benefit of your friends and neighbors who might not be as informed, I wanted to share them with you.
Common Investor Mistakes and How to Avoid Them
- Not Starting Now
The best time to start investing was 20 years ago; the second-best time is now. As Theodore Roosevelt famously quoted, 'Do what you can, with what you’ve got, where you are.'
Since 1980, the S&P 500 index has grown at an average rate of 11.91%, so every year you delay costs you potential growth. Start with whatever amount you can afford, start now, and make it automatic to continue investing each month. - Not Aligning Your Asset Mix With Your Goals
It’s crucial to match your investment strategy with your timeline and goals. Ask yourself, when will you need to access this money?
- For retirement 10 years away, stocks are a solid choice.
- For a child’s college fund needed in 5 years, consider interest-bearing investments to protect the principal.
- For a vacation in 6 months, keep the money in a savings account or a money market fund—low return, but zero risk to principal.
Investing without alignment to your goals introduces unnecessary risk. For example:
- Putting vacation money in a volatile stock could mean a sharp loss right before your trip.
- Keeping retirement savings in a money market account could result in insufficient growth, especially if interest rates drop.
By investing in line with your timeline, you can avoid worrying about daily market fluctuations.
- Not Understanding What You Own
Simplicity is key when you’re starting out. Broad stock and bond Exchange Traded Funds (ETFs) are a great, low-cost way to gain exposure to entire markets.
- For stocks, consider S&P 500 funds or Total Stock Market Funds.
- For bonds, Barclay’s Aggregate Bond Index is a solid option.
As your portfolio grows—say, to $100,000 or more—you can start diversifying further with small and mid-cap indexes, or international stocks. When your assets reach $300,000, it’s wise to consult a fiduciary financial planner to create a strategy that aligns with your goals. I’d be happy to discuss this process with you—just click this [LINK] to schedule a get-acquainted visit.
- Paying Excessive Investment Expenses
With over 20 years in financial services, I’ve seen how well investment companies market their products. While many are enticing, not everyone needs to pay for the most sophisticated options.
As a fiduciary financial planner, my goal is to serve my clients’ best interests, not to meet sales quotas or earn commissions. I constantly evaluate the costs of investments and how they can impact your long-term returns. Even a modest increase in expenses can compound over time, so it’s essential to understand what you’re paying for. If you have questions about your investment costs, I’d be happy to help you figure it out—just follow this [LINK] to schedule a visit.
- Making Big Changes at the Wrong Time
It’s natural to feel stressed during extreme market conditions, but that’s why it’s better not to monitor the markets daily. When news is alarming, the urge to take action can be overwhelming, but often the best move is to do nothing.
I often tell clients that navigating extreme market conditions is like being in the middle of a stormy lake—it's not the best time to stand up and change seats. Making sudden adjustments during these times can lead to unexpected penalties in your investment performance.
If you find yourself wondering if your investing plan needs an overhaul, maybe you would benefit from a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota and, thanks to Zoom, across the country.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.