Big Mistakes Every Investor Makes that hurt your Future.
Making just one of the following mistakes will hurt your returns, which in turn will harm your retirement.
Buying and selling: trying to pick tops and bottoms – some call it Market Timing.
When people get nervous about a short-term pull back or negative news, they make bad emotional decisions. Take Ebola recently. I received many calls on my radio show from nervous investors who thought that the Walking Dead was going to be a reality show. Emotions are bad for your wealth!
If you try to buy and sell/time the market, you’ll get a much lower rate of return, studies have shown time and time again.
When should you sell risk assets like stock? When the economy is showing signs of slowing/ recession. Watch for signs such as slowing GDP growth, rising unemployment and weakening retail sales. The average recession pulls down stocks 30 to 50% over the following 12 to 18 month period on average. The 2000 and 2008 recessions are great examples.
Moving to the sidelines when recession indicators were triggered would have saved you from major loses.
This isn’t buying and selling daily or market timing, but using proven data that helps the investor reduce large loses or draw downs in their overall portfolio.
Recessions happen approximately every 5 to 7 years; it’s a normal part of the process of long- term growth.
When should you add back to stocks? When the recession is in full force and every investor is nervous. Headlines are rampant with fear, usually after a 30 to 50% pull back in stocks. Watch the 35day exponential moving average (EMA) of the S&P500. When the daily price crosses above it after at least a 30% pull back, look to Buy. The market will get better well before the news does.
Not following an Investment Strategy: this includes managing risk. Most investors shoot from the hip, numerous studies have shown.
Emotions don’t help you manage your portfolio, they cost you. A proven investment strategy is vital to helping you make money and stop the emotional roller coaster too many investors face.
As a firm, we follow a disciplined investment strategy utilizing Relative Strength. We also utilize Risk Reduction strategies to exit the stock market in times of Recession. We utilize a proprietary group of factors and algorithms to buy assets that show higher relative capital appreciation. Relative Strength has been shown to be a great predictor of the future strength of an asset class. As an investor, you need to develop and follow your own investment strategy, or hire a real money management firm, not a sales organization… more on that later.
Following your emotions, gut reactions, tips from your friend Bob or the talking heads on Wall Street is not an investment strategy and will hurt your portfolio.
Strategy, strategy, strategy – not following your emotions!
Working with a Sales organization and not a real Fee-Only Money Manager (RIA): 90% of investors are really just being sold by Wall Street, Banks and Insurance companies. They believe these firms are managing their money and working in their best interest, but they are not.
These firms work under the Suitability Standard, meaning they are just sales organizations that don’t manage your money. These firms and their so-called advisors are required to sell you the more expensive, inferior performing investments that they manufacture.
That advisor with a fancy, deceptive title like Wealth Manager or Vice President from your Wall Street firm, bank and insurance company has a warm and fuzzy personality, but that personality isn’t going to help your retirement.
You need to be sure that you have an independent Fee-Only Money Manager (RIA). Real Money Management, not a sales pitch.
Call us if you need help.
Rezny Wealth Management, Active Money Management which includes Risk Management. There is a Difference! We invite you to experience it.