Sometimes it seems impossible to protect people from themselves. Mark Lamkin from Lamkin Financial Services say in his 23+ years in the business, he has found five common reasons that cause retirement savers to fail:
One: Emotions Vs. Behavior
In the 20 years ending Dec. 31, 2012, the Standard & Poor's 500 Index compounded at 8.2% while the average investor in U.S. equity funds made only 4.3%. In other words, nearly half the return of the market was lost.
Any investor who adds money at other times or takes it out at other times will have a different return.How did investors lose half the return of the market? Where did it go? First, investor behavior, mostly emotion-based buying and selling based on emotions, costs two percentage points. That brings the return down to 6.2%.
Second, there's the cost of running funds that are trying to beat the market. The average annual cost of operating a fund, 1.3%, reduces the return further, to 4.9%. Third, portfolio turnover is almost always higher in actively managed mutual funds - sometimes much higher.
Two: Bond Bear
Those numbers refer to equity funds. The results were much worse with bond funds. In that same 10 years, the Barclays Aggregate Bond Index returned 6.3% a year; but average investors in bond funds made only 1%.
It's bad enough that equity investors received only 52% of the return of the market. Bond investors, however, got only about 15% of what they could have gotten with a bond index.
There's not much mystery about the source of the problem with investing in bonds. For many years the bond market has been overshadowed with the threat of higher interest rates, a threat that has received plenty of attention in the media.
This has kept many investors away from longer-term bonds, which have more interest-rate risk, even while interest rates continued to decline, seemingly against all odds. The media, as well as many securities salespeople, repeatedly warned investors in 2011 to steer clear of long-term government bonds. In that year, those bonds returned 27%.
Relying on Experts. Tune into the business channel and you will see some expert pumping up a stock. You think that it sounds good and invest in it. Bad move. No one knows how the market is going to react. There might be a short-term pop in the stock the expert is promoting, simply because so many others are blindly following their advice. In time though, the stock will return to normal. Stay focused on your goals and on the plan you created for yourself.
There are thousands of mutual funds, stocks and bonds to invest in. You could easily spend your entire life researching each and every one of them. Too many fall victim to analysis paralysis. This happens when you have so much information, you end up not making a decision because you are overwhelmed with it all. Search out low cost index funds and stop there. Pick a few that will give you the allocation you need for your goals and more on. No need to research until you can't take it anymore.
Four: How much?
No Financial Goals or Change Goals Too Often. If you are going on vacation , you have a plan, right? So why wouldn't you have a plan for your money? After all, a typical vacation only lasts a week while you want your money to last your lifetime, and possibly more. Sadly, too many people have no plan and simply throw money into the market, thinking they will figure it out later. Later comes, and they still have no clue. Sit down and think about what you want financially. Once you have an idea, create a plan around it and stick to it!
Being Too Greedy. You see that Apple stock keeps rising so you go ahead and invest in it because you think it can't lose. Or, you have lost much of your retirement savings in the past few years and to make up for it, you invest everything you have in technology stocks. Don't be greedy. Stick to your plan. When you chase investments, you will get burnt. Trust me. I've done it and so have many others.
Lamkin Wealth Management
5151 Jefferson Blvd., Suite 102
901 Lily Creek Drive Ste. 102
office: 502-961-6550 Office
toll free: 866-961-6550
"Securities Offered Through LPL Financial, Member FINRA/SIPC and an Investment Advisor"