The Biggest Investment Mistake People Make (and What to Do Instead), Ep #51

This mistake is dangerous when it comes to the investment selections that you make. To avoid this mistake, you have to focus on why you’re investing in the first place. What is it actually for? You can’t make poor decisions with your “serious” money that’s devoted to providing for your retirement.

You will want to hear this episode if you are interested in…

• [2:06] Check out the resources on my website!
• [5:47] The most dangerous mistake I see people make
• [9:06] #1: What is your risk tolerance?
• [10:05] #2: What are your goals?
• [11:19] #3: What are your investment philosophies?
• [12:42] #4: Your values might dictate your portfolio choices
• [13:52] #5: Do you understand your investments?
• [15:44] Your investment strategy should be based on you

The most dangerous mistake I see people make

I see this all the time, especially if there’s a fad in play. What does that mean? Most recently, AMC, bitcoin, and GameStop are trending in the trading world. What about gold? The media hype and headlines confuse people. It can stir greed or the “fear of missing out” in people. Perhaps it stirs feelings of jealousy when you hear that other people are getting rich quickly.

Taking investment advice from people who aren’t qualified is the biggest mistake I see. Whether it’s your brother-in-law or neighbor giving you investment advice, it is dangerous. The elevator to success is broken—you have to use the stairs. If I can give any advice to the people investing their life savings for retirement it is this: don’t get suckered into the headlines.

These should be the determining factors of how you invest

What factors do I look at to determine how your retirement dollars should be invested?

1. What is your risk tolerance? Do you lose sleep when you see your retirement account statements have lost money? Or do you not care if your retirement nest egg fluctuates? What you invest in depends on whether or not you’re a conservative, moderate, or aggressive investor.
2. What are your goals? Do you want to pay for your grandchildren’s education? That tells me a 529 plan might be important in your portfolio. What if you want a certain dollar amount of income to draw from in retirement? You need an investment portfolio that provides that monthly income. So we choose investments to help you accomplish that goal. 
3. What are your investment philosophies? I’m a huge Dave Ramsey fan and a Smartvestor Pro. My philosophies match Dave Ramsey’s. You may not share those same philosophies and that’s okay. It’s my job to determine what your philosophy is so I can help you build a portfolio around it. For example, gold—as an investment—is a commodity. You have to buy low and sell high. The average return on gold is only 2%, which doesn’t cut it for me.
4. Your values might dictate your portfolio choices. A trend lately has been socially responsible investing. People like to embrace that frame of mind in their investments. They may want to match their values. It’s looking for investments that will make a future social change (i.e. solar energy) and excluding unethical investments.
5. Do you understand your investments? Do you know what they are and how they work? Could you explain it to someone else? Warren Buffet never purchases any stock that he didn’t understand. So he’s not a huge proponent of Bitcoin. Knowing that you understand what you’re investing in will give you the confidence you’re looking for.

Knowing these five things can help you put blinders on when someone is talking about the next investment fad or stock tip of the week. That’s for the person trying to make a quick buck—not you.

Your investment strategy should be based on you

Your money that is earmarked to fund your retirement needs to be invested prudently based on you. Not your brother, sister, or colleagues. Their goals, risk tolerance, philosophies, and values are different from yours. Their portfolio will be different from yours and holds no bearing on your decision-making. If you need help designing your portfolio, that’s what a certified financial planner can help you with.

Go to my website and download my couple’s guide to a dream retirement. I guarantee that will improve your path to retirement!

Resources & People Mentioned

• Retirement Made Easy Resources: https://retirementmadeeasypodcast.com/resources/