Today’s ever-changing financial environment can be difficult to successfully navigate. There is a wealth of information and, just when you think you have it figured out, the tide shifts in the other direction. Having a “friend in the business” is invaluable, and so here are 4 mistakes I see others making today. These mistakes can cost thousands, or even tens of thousands, of dollars per year! Luckily, they are easily avoided if you have someone who maintains the advantage, genuinely guards your investments, and has your best interests at the forefront.
Mistake 1 – Being “All in” or “All Out”
It is human nature to have a “straight line” mentality and believe that the way things have been recently is how they will continue to be going forward. It’s called “straight-lining”. For example, so many investors believed that the strong returns they received on stocks heading into late 2007 would continue. The general mindset was that the markets were on a tear and there was presumably no end in sight. This mindset caused many investors to be “all in” the stock market going into 2008. Many investors had 80% or more of their portfolio in equities, and some investors even used margin to add more leverage to their stock holdings. Little did they know as we entered 2008 that the stock markets had peaked in late 2007 and were headed south in a big way! When the markets took a severe downturn in 2008, many investors panicked and went “all out”, selling near the market’s bottom in late 2008 and early 2009. They not only sold at or near the lows, but they then missed out on the great returns of 2009 – the S&P500 stock index was up over 26% in 2009. On the contrary, those who didn’t panic and maintained well-diversified portfolios came out on top as the market rebounded, and by the end of 2009, those with a diversified portfolio were back to even from where they started in 2007. They understood that just because the market was down for a time, it didn’t mean it would stay down forever.
Mistake 2 – Closely Watching Daily Headlines
I bet you’re a bit confused. Isn’t it prudent to keep up with the headlines? Well, no. There is a difference between being well-informed and being “headlines informed”. The truth is, if it’s in the headlines that means it has probably already happened and the “smart money” has made their profits. It’s typically too late to act on it at that point. Timing the market is not as realistic or as simple as the news may make it seem. After all, it is the media’s job to sell you the news and keep you coming back, each and every day, even if that means they have to sensationalize the headlines. Making investment decisions based on news headlines is one of the worst ways to invest. Partnering with a professional who gives you honest facts and vigilant insight is essential.
Mistake 3 – Chasing the “Hot-Dot”
As I touched on above, the inclination to believe that what is doing well now will be doing well forever is the gaffe of many. The “hot-dot” is that one investment on a performance chart that’s sticking out above the rest. While it’s so tempting to invest heavily in what is doing great right now, if you want to be sure to have some brag-worthy stocks in your pocket, you must resist the urge to chase the ever-changing “hot-dot”. Instead, focus on building a well-diversified investment portfolio based on sound investing principles that are consistent with your objectives and risk tolerance. Studies have shown time and again that what has performed best recently most likely won’t perform best going forward. While there may be times to ride the momentum of an investment that’s outperforming, consistently chasing the “hot-dot” can lead to underperformance of your portfolio.
Mistake 4 – Paying Too Much for Your Investments
Your cost to invest can be broken down into three main parts: a firm level fee, the cost of buying and holding an investment, and tax ramifications. I often meet prospective clients who are unknowingly spending a small fortune on unnecessary fees, expenses, and taxes. Oftentimes, their portfolio ends up being more beneficial to their so-called advisor and his firm than to the client themselves!
Generally, when I review a prospective client’s portfolio, I find they are usually paying over 1% (sometimes 1.5%-2%!) to their advisor’s firm to “manage” the portfolio. In addition, the portfolio is invested full of expensive mutual funds and annuities with hidden fees, so often those fees can add up to 1% or more. Finally, to top it off, the advisor is ignoring the tax implications of the investments and the portfolio is not being managed in a tax-efficient way, so more money is flying out the door every April! Many people don’t grasp how this adds up quickly and it can mean 2-3% of their investments are being needlessly lost to fees, expenses, and taxes – each and every year! I pay a lot of attention to the portfolios I manage and I am happy to demonstrate to prospective clients how I can run their portfolio for much less than their current advisor simply by paying attention to the “little things”. It is this professional attention to detail that allows me to help clients reach their goals (i.e. growing their net worth) that much faster.
Put Your Money Where it Works Most Efficiently
A financial advisor, following a fiduciary standard, can potentially save you a substantial amount of money every year compared to an advisor who doesn’t pay attention to the details. Making sure your portfolio is diversified and you are investing in the right areas in the right ways are obvious ways of doing this. Ensuring you don’t hand your hard-earned dollars over to unnecessary fees, expenses, and taxes is less obvious but also equally significant. Working with the right type of advisor, one who has the expertise necessary to proficiently steward all areas of your portfolio, gives you the opportunity to grow your portfolio most efficiently.
Your Next Step
Are you curious to see if you’ve been making one of these 4 common mistakes? I’d be happy to speak with you, on a no-obligation basis, about how I can help you get on the right financial track. I won’t pressure you, I’ll just show you the facts, and let you decide. Whether you already have a sizeable portfolio or are interested in getting started, I encourage you to contact me to see how I can help you invest successfully. Call my office at 856-888-1744 to schedule your no-obligation conversation today or email me at gregh@haddonwealthmgt.com .
About Greg
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management for clients who value a relationship-driven approach that delivers customized solutions. He seeks to address clients’ many financial needs in an integrated approach combining both investment management and financial planning which may include some or all of the following: detailed retirement planning using a year-by-year cash flow analysis, tax-minimization estate planning, social security decision analysis, education planning, and much more. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley as well as nationwide. To learn more, connect with Greg on LinkedIn or call 856-888-1744.
