With myriads of economic resources at our fingertips, there are still common financial mistakes many people make. This is especially true when it comes to long-term financial planning for retirement. In my career as a real estate agent, I often worked with people whose only investment for their “golden years” was their personal residence.
Now that many of those same people have mortgages under water, the possibility of retirement looks bleak, especially coupled with the loss of occupational pension plans. How can we avoid similar mistakes in the future? Christi Garcia of Edward Jones Financial in Gilroy, CA offers her expert advice on how to avoid the top five retirement mistakes most people make that keep them from retiring.
Mistake 1 : Not having a Strategy in place with a Financial Advisor : “Many investors participate in a “DIY” approach to investing, often out of fear, mistrust or ambition to be savvy in the field. Doing it yourself leaves too many holes in the long-term plan.”
Solution: “Develop a long-term strategy with trusted professionals. Communicate what your goals are. Have a written plan to achieve them. Review your plan and portfolio with them on a regular basis.”
Mistake 2 : Chasing Stocks, Yields and Returns: “Looking for those ‘hot tips’ usually results in buying high, selling low, trading too often, paying too much in commissions and wasting time.”
Solution: “Stick with quality stocks and diversify. In general, look for growing, well-managed companies in solid industries. It’s not only what you make, but also what you keep that’s important. Be cautious shopping for yields–learn the real reason some yields are so high.”
Mistake 3: Not Diversifying : “Having your money in three different banks, and five different energy stocks is not diversification. Fear, and lack of understanding of investments keeps people from doing this correctly.”
Solution: “Diversify your stocks by sector, and geography. Ladder Bonds by maturity date with short-term, and long-term liquidity.”
Mistake 4: Letting Emotions Drive your Long-Term Plan: The market always has ups and downs. Emotions–such as fear–often drive our investment decisions. Waiting to ‘feel good’ or ‘feel bad’ about investment changes results in errors with possible tax consequences.”
Solution: Consider performance of the portfolio as a whole, not just a single investment in it. Avoid buying high and selling low using the long-term approach–buy and hold. Continue to invest in your retirement no matter what.” It is never too late to start–something is better than nothing.
Mistake 5: Not Understanding Investment Risks: “We are bombarded with financial scare tactics. Many investors constantly watch the latest market and trends, making decisions without solid financial advice. This leads to panic selling and sellers remorse.
Solution: Educate yourself properly. Understand and accept each investment’s risks. Know your personal “risk tolerance temperature” so that when markets change, you will already know what to do because you discussed it ahead of time with your advisor.
All quotes from interview with Christi Garcia, Financial Advisor, Edward Jones Financial, Gilroy, CA 11-20-10