In today’s rapidly changing marketplace, investors need to take steps to make the most of their retirement savings while avoiding common mistakes and traps. After years of analyzing a wide variety of client accounts, three typical portfolio mistakes show up on a regular basis and can be remedied with some simple strategies.
1) Overlap Some investors feel that holding a certain number of mutual funds or ETFs will provide the diversification they need to create the returns they want while protecting them against a major market slide. However, just because you may be holding seven or ten different mutual funds or ETFs doesn’t ensure that your portfolio is diversified. What many investors don’t understand is that two, three, or even five different mutual funds can all be investing in the same companies. In other words, they are overlapping each other and are concentrating your investments instead of diversifying it.
This issue can be compounded when couples build their portfolios without considering how the other spouse’s asset allocations may intersect their own. As a result, overlap can become problematic during market downturns because similar holdings fall in sync rather than balance each other out. Obviously, the same can happen when things turn positive but from a risk management perspective, investors need to be aware that the number of holdings alone, even in varying asset classes, may not be providing adequate diversification.
2) Overpaying We believe that one of the best ways to make money in your investment portfolio is to save money. That means examining the multitude of fees and expenses that comes with different products and services. Unfortunately, because there are no uniform standards for reporting fees and expenses many investors don’t realize that they may be out thousands of dollars each year simply because they aren’t taking into account the impact they can have on their returns.
Investing is not for free and just because you don’t see a fee, expense, or penalty in plain sight, doesn’t mean they aren’t lurking behind the scenes ready to zap your retirement savings. Therefore, when it comes to any investment, be it life insurance, an annuity, mutual fund, ETF, stock trade, or anything else out there, always ask for all fees to be calculated and presented to you in both an annual dollar amount and percentage. Be sure to ask for a detailed list of potential penalties or transaction costs, and don’t ever be afraid to ask how much your advisor with will earn from their recommendations, even if they say you don’t pay them directly and that the company does.
3) Oversight The third and most disheartening portfolio mistake people make is the lack of attention they give to their portfolio. You can tell when someone hasn’t adjusted their asset allocation in 10 years or has blindly allowed a company to change plans and used default investments as a result. Investors need to understand that Peter Lynch doesn’t run the Fidelity Magellan Fund anymore, and if they’re less than five years from retirement, their portfolio should resemble their age and wisdom, not the ambitions they had five or 10 years ago.
No one is asking you to be a financial guru or to devote 40 hours a week to your investments, but you should have a process for regularly reviewing your goals, results, diversification, expenses, and investment options based on both your current situation and your projected retirement date. It’s more about knowing which questions to ask and what to avoid rather than trying to time the market or always picking the most successful investments. Additionally, investors need to stay on top of new products and tools. Exchange Traded Funds (ETFs), Target-date Funds and Monte Carlo Simulations are not exactly new but many have not heard about them let alone understand how to use them to reach their retirement goals.
Are you concerned or worried about making one or more of these mistakes? Whether it’s overlap, overpaying, or the need for more oversight, we can answer your questions and help you resolve your fears. Contact us today and put our knowledge and experience to work for you. There is no cost for an initial meeting where we can get to know more about you and discuss next steps to avoid making these or other investment mistakes.
Are you feeling overwhelmed, confused or burdened by your various retirement savings accounts? Looking for someone to help you get things organized and on a track to help you achieve your financial goals? Contact us today and put our knowledge and experience to work for you. There is no cost for an initial meeting where we can get to know more about you and discuss next steps to taming your retirement savings hodgepodge.
Click here to schedule or meeting or call (423) 247-1152 to request more information.