As nice as it would be, it’s impossible to live a life without mistakes. Thankfully, most mistakes are minor, don’t cause much regret, and give us an opportunity to learn. But financial mistakes? They’re in another category altogether and are often a lot harder to swallow or difficult to recover from.
That’s why knowledge is power when it comes to avoiding financial mistakes. The more you know, the better prepared you are to make the right decisions and be proactive about your financial future. Here are four common financial mistakes I’ve seen over the years and how you can prevent them from wreaking havoc on your finances.
1. Not Giving Diversification the Attention it Deserves
Not understanding diversification and how it will help you prepare your wealth management plan in retirement is one of the biggest mistakes we see our clients make. Most of us know, in theory, that investment diversification is a key strategy, but we don’t follow through by staying on top of our portfolio or rebalancing every so often. Without vigilance, we may find ourselves invested too heavily in one industry or type of investment.
True diversification is a risk management strategy. When properly implemented, it is designed to reduce risk and taxation while maximizing long-term profits by mixing a wide variety of investments and asset types in one portfolio.
2. Not Developing an Income Plan in Retirement
A well-developed retirement plan should include the following types of income: guaranteed income, such as a pension or Social Security, and investment income, such as real estate or income from your retirement account.
But it takes more than just saving a specific amount of money to prepare your finances for retirement. Aside from the types of income, you also need to think about the timing of your retirement withdrawals. You likely know that you can start withdrawing Social Security at an earlier age; however, if you delay taking benefits until you are 70, your benefit amount will increase.
There are also tax implications of withdrawing certain investments at different times that could affect your investment and retirement strategy. It is a good idea to outline an income plan with your financial advisor that takes these considerations into account.
3. Trying to “Beat” the Market
In investing, the long term is what matters. While a select few mutual funds might outperform their benchmarks in any given year, over time we see that this outperformance usually doesn't last. No matter how hard they try, even the most highly educated and experienced financial analysts have no way of knowing what the markets will do on any given day. While we may hear stories of people who have found incredible success through the stock market, those who accurately time the markets are very lucky and very rare, and those who follow all the “ups” also have to follow the “downs.” If you want to see growth in your portfolio through the stock market, stick to your investment strategy and ignore the short-term noise.
Investors have historically been much better served by focusing attention, time, and energy on things they can manage, such as how much risk to take in the first place, rebalancing periodically, having realistic growth rate assumptions, and developing their investment strategy as part of their financial planning process.
4. Believing That Financial Planners Are too Expensive
While there are certainly financial advisors who work with exclusively high-net-worth clients, many financial advisors, like us, believe that developing a comprehensive wealth management plan with a trusted financial advisor is a critical step that should be available for everyone.
It is important to remember that proper financial planning can save you thousands in the long run, and while it may cost you a bit of money up front, investing in yourself now is investing in your future. Just like regular home or car maintenance will protect those investments, paying a financial professional to help you manage your finances will help protect not just your money today, but your entire financial future.
Are You Making Some of These Financial Mistakes?
That’s what we’re here for. At the Center for Wealth Management, we help you avoid these common mistakes and plan your financial future with intentionality. Call (248) 220-4321or email robert@cwmfinancial.net to get started. You can also schedule a meeting by visiting www.calendly.com/cwmrob/initial.
About Rob
Robert Moore is senior partner, financial planner, investment advisor, and co-owner of Center for Wealth Management, an independent, fee-based wealth management company based in Troy, MI. With more than 15 years of experience, Rob provides customized advice and solutions that are in the clients’ best interest. He strives to always go above and beyond his clients’ expectations, helping them retire with more security than they had before, and invest their time and energy in what’s most important to them. Rob specializes in working with DTE Energy employees, helping them maximize their benefits so they can reduce taxes, prepare for retirement, and protect their families through a comprehensive planning process. Rob graduated from Michigan State University and holds the CERTIFIED FINANCIAL PLANNER® (CFP®) and Chartered Financial Consultant® (ChFC®) designations.
Rob is known as a diehard family man who enjoys spending time with his beautiful wife, Jill, his daughter, Brookelyn, and his son, Brayden. When he’s not working, you can find him playing basketball once a week, squeezing in a round of golf, and watching college football and basketball with friends and family. He is passionate about enriching the lives of others through his church involvement and service at a community addiction program. Learn more about Rob by connecting with him on LinkedIn.