Chasing performance. Investors often move out of sectors that are not performing well, investing that money in high-performing investments. But the market is cyclical; and often those high performers are poised to underperform, while the sectors just sold are ready to outperform. Rather than trying to guess which sector is going to outperform, broadly diversify your portfolio.
Looking for get-rich-quick investments. When your expectations are too high, you have a tendency to chase after high-risk investments. Your goal should be to earn reasonable returns over the long term, investing in high-quality investments.
Avoiding the sale of an investment with a loss. When selling a stock with a loss, an investor must admit he/she made a mistake, something that is difficult to do. When evaluating your investments, objectively review the prospects of each one, making decisions to hold or sell on that basis.
Selecting investments that don’t add diversification benefits to your portfolio. Diversification helps reduce your portfolio’s volatility, since various investments respond differently to economic events and market factors. Yet, it’s common for investors to keep adding investments that are similar in nature. This does not add much in the way of diversification, while making the portfolio more difficult to monitor.
Not checking your portfolio’s performance periodically. While everyone likes to think their portfolio is beating the market, many investors simply don’t know for sure. So analyze your portfolio’s performance periodically.
Letting market predictions cause inaction. No one has shown a consistent ability to predict where the market is headed in the future. So don’t pay attention to either gloomy or optimistic predictions. Instead, approach investing with a plan.
Expecting the market to continue in its current direction. Investors have a tendency to make investment decisions based on current trends in the market. However, there is a tendency for markets to revert back to the average return when they have an extended period of above- or below-average returns.
Not understanding that saving and investing are two different concepts. Saving involves not spending current income, while investing requires you to take those savings and invest them to earn a return. Saving often becomes easier when separated from the choice of where to invest. Find ways to make saving as automatic as possible, then take your time to research and select specific investments.
Considering only pretax returns. One of the most significant expenses that can erode your portfolio’s value is income taxes. Thus, don’t just consider your pretax returns, but look at after-tax returns. If too much of your portfolio is going to pay taxes, look at strategies that can help reduce those taxes.
Reesa Manning is Senior Vice President and Financial Advisor at Integrated Wealth Management, specializing in retirement and income planning. For more information, call Reesa at (760) 834.7200, or [email protected].
The above is being provided for informational purposes only and should not be considered investment, tax or legal advice. The information is as of the date of this release, subject to change without notice and no reliance should be placed on such information when making any investment, tax or legal decisions. Integrated Wealth Management obtained the information provided herein from third party sources believed to be reliable, but it is not guaranteed. Form ADV contains important information about the advisory services, fees, business, and background and the experience of advisory personnel. This form is publicly available and may be viewed at advisorinfo.sec.gov