Fact: May informed investors fail or struggle to accumulate for their retirement
Why does this happen? If you ask me, honestly majority of my clients are accumulating for retirement as one of their goals. In fact, this goal has taken prominence over other goals now. But still, investor fail or struggle to fulfill this goal.
The top most reason that I foresee is, this goal has the longest period of waiting or preparation and that is why it become harder to concentrate for long. A small mistake sabotage the plan to the extent that many people do not recover. For eg failing to come down on equity when the age increases but markets make investor greedy because of the returns.
There are more such mistakes. That is why we always emphasize on behavioral authenticity when it comes to planning investments for long term. These are the few common mistakes which derail your retirement planning:
- Investing without a defined-income plan.
One of the biggest mistakes people make is not having a plan. It’s never too early to start saving for retirement, but if you are in your 50s and still have responsibilities or finding your income too little in comparison to expenses, there will be a tough time ahead.
There are strategies and new financial products that can benefit your bottom line. This is all about setting goals, defining your risk tolerances, sticking with the plan and possibly sacrificing the iPhone 7 plus and the exotic vacations. But you need to have a plan first!
- Taking too much risk to hasten the results.
When you are young, you can typically afford to take risks with your investments because time is on your side. This is the accumulation phase. After accumulation, the next phases are preservation and distribution, and this is generally when your financial strategy should become more conservative.
Many investors “throw-in” everything during preservation stage trying to complete the race. Sometimes this works in Las Vegas at casinos, but never in real life.
Many thumb rules exist like “Rule of 100”. It states that you should subtract your age from 100 to determine the approximate percentage of your investible assets you should have at risk. It sounds simple, but practicing is typical. Selling money making assets to buy conservative assets is not easy on the mind.mb7oihjuu
Therefore we recommend asset allocation and yearly rebalancing of the portfolio.
- Your investments don’t match your needs.
Internet and blog sites are full of advice and model portfolios but there is no such thing as a one-size-fits-all strategy for investments. For a strategy to be viable, it needs to be tailor-made for your retirement goals.
Do your homework, seek the advice of a fiduciary or Registered Investment Advisor and seek a second opinion just as you would with a health diagnosis. You and the decisions you make are ultimately responsible for your financial health, but there is nothing wrong with seeking reasoned input from professionals.
- Not paying attention to illness protection and a long-term care plan.
When we suggest Critical Illness cover to an investor in late 30s they get shocked of their lives. No one wants to talk about illness and the need for long-term care, but it’s better to discuss and plan for it while you are Healthy rather than when the situation may be out of your control. The occurrence-age rate of critical illnesses is decreasing at an alarming rate.
Also for long term care, many options exist and continue to come, from assisted living to nursing homes or a rehabilitation center. Depending on kids for your health issues is not a strategy. The expense of long-term care should be factored into your retirement plan.
- Being unaware of fees, expenses & portfolio maintenance costs.
The free advisory is also not free as fees/brokerages aren’t going to go away, but you certainly need to be aware and keep track of where your money is going. From broker commissions to expense ratio in mutual funds, you need to keep tabs on how much you are spending.
It may mean renegotiating with your advisor, going directly for fees or finding a new one. It may mean buying a mutual fund with a smaller internal expense ratio. Take a close look at the fine print before hitting “I agree” to terms.
In mutual funds, you can know the expense ratio and brokerage paid to your distributor from the quarterly Consolidated Account Statement. Here is a sample:
- Talking to “misinformed” about your finances.
The neighbors’ or coworkers’ advice may be well-intentioned, but it’s likely misguided or possibly self-serving. Share parenting tips and stories about your childhood—but never talk money. It is inviting the confused to defog the existing confusion.
All you need is one plan, some information, regular checks and a cool head on alert shoulders.
And, last words:
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