One Secret to Investing: Do Less

matchbox car

We’ve all been tempted. Whether there’s a hot new sector that seems to be on fire, or a classic U.S. company that seems poised for a new burst of life, or, worse, a pundit who keeps warning us not to get caught flat-footed.

It’s human nature to be attracted to the next shiny new thing. My 2-year old son was perfectly happy playing with his trusty push truck, for instance, until he got a shiny red Matchbox car for his birthday and abandoned the – still very serviceable – truck.

It’s also human nature to try to catch winners on the way up and want to abandon the underperformers. But that doesn’t mean it’s always a good idea.

While the market as a whole has done quite well over the last 20 years – the S&P 500 has returned approximately 9.9%, and a diversified portfolio of 60% stocks and 40% bonds would have returned 8.7% [1]– the same can’t be said for the average investor.

During the 10 year period from 2003- 2013, the average investor’s portfolio only returned 2.6% annually, [2] barely a quarter of what the S&P returned, and not much higher than the rate of inflation.

What’s the reason for this underperformance?

By trying to beat the market by chasing performance, by trying to time markets, and by overpaying in fees, investors hurt their returns significantly.

Chasing Returns

When a particular investment is performing well, investors often get excited and invest more, causing the price to continue to climb. As it does, more investors are attracted to its returns – even as the stock becomes more expensive – causing the price to rise even more.

Eventually however the investment will return to its intrinsic value, and fluctuate slightly around that number.

When that happens, the investors who tried to chase performance and bought on the more expensive upswing, will lose money or underperform the market.

Timing the Market

It is not surprising that investors try to time the market. If we were able to predict when markets would top and when they would bottom, we’d all be enjoying extraordinary returns. In reality, however, very few people who try to time the markets actually succeed.

According to Morningstar, market timing costs the average investor 1.5% annually. For a hypothetical portfolio that returned 8.7% annually, a 1.5% additional ‘expense’ ends up eating up over 17% of the investor’s returns.

Warren Buffet once said, “the only value of stock forecasters is to make fortune tellers look good.” Famed investor Peter Lynch said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. [3]

If Warren Buffet and Peter Lynch don’t believe in trying to time the market, and studies have shown that strategies that try to time the market have very low success rates, it’s a good sign that you’re probably better off not trying too.

Overpaying Fees

If you are chasing returns, and trying to time the market, chances are you are making more trades than you would with a buy-and-hold strategy. That means you are paying more fees, which also affects your overall rate of return negatively.

A Potential Solution

The smarter approach may be to do less. Investors have historically hurt their returns by over-trading. Looking at your portfolio too often or constantly checking up on how the markets are doing can be detrimental to your finances if you are prone to reacting too impulsively. Rather than trying to time the market, or always buying the next hot stock or asset class, investors tend to have more success by taking a hands off approach.

Yes, his red Matchbox car is shiny and bright. But, as my son grows up, I hope he’ll learn to value the tried and true as well. And smart investors do the same, thinking carefully before they leap into the next big thing, or try to catch the current wave and ride it to the top.

Sometimes doing less is doing more.

 

 

It may be helpful to speak with a financial advisor to determine if your current portfolio and your current strategy are appropriate for your individual investment needs.

1) https://www.jpmorganfunds.com/blobcontentheader/202/900/1158474868049_jp-littlebook.pdf  (page 65)

2) http://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/

3) http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0

LFS-1189812-050415

 

Navigating the Stock Market: Tips for Millennials

Understanding the Stockmarket

Navigating the stock market can be daunting for anyone, especially if you’re new to investing.

Between struggling to pay off student loans, finding jobs in a difficult market, and setting goals for financial independence in a stressed market environment, it’s been a daunting few years in general for many Millennials, who may have put off investing because they just don’t feel comfortable or ready.

Feeling comfortable with investing – and understanding how the stock market works – is critical, however, as you start gaining independence and start making important financial decisions. If you get started now, you’ll be maximizing your chances of hitting those marks on your way to achieving your goals!

Here are some basic tips to help you get started.

7 Tips For The Long Term Investor

Start today: Procrastination can put a large dent in your ultimate savings. Whether you’re investing in a retirement savings plans or a regular investment account, it’s important to start early so that your investments compound. Remember, even small amounts add up over time!

Create a plan and stick with it: There are many ways to be successful and no one strategy is inherently better than any other. Once you find your style, stick with it. Bouncing in and out of the market makes is just as likely you will miss some of the best days and hit the worst.  Readjust your portfolio when necessary, but not too often.

Think long term and be disciplined: Be prepared to buy and hold your positions. Big short-term profits can be enticing when you’re new to the market but short-term wins will get you off track. Start a program, stay invested, and don’t be too concerned with day-to-day profits and losses.  Warren Buffet once asked, “Suppose you’re going to be investing for the next several years. Do you want the price of the stocks to go up or down?” While everybody assumes it’s “up,” in reality, it’s only people who are withdrawing in the near future who really want stocks to go up!

Do your research: Always be an informed investor. Do your own due diligence with companies you’re interested in. Don’t go for a ‘hot tip’ just because there’s a lot of buzz; research companies, get advice, and decide if they’re investments that are right for you.

Never let your emotions influence you: The markets move in cycles. When the markets are up, we feel elated about our investment decisions. When markets start to move down, we may experience anxiety and panic. Reacting emotionally can lead to spur of the moment decisions that don’t benefit you in the long run. Again: think long term.

Always have a margin of safety: The first rule anyone new to investing needs to learn is that there are no guarantees in the stock market. An investment that looks great on paper does not always pan out in real life.  Know how much risk you are willing to take and make sure your investments are aligned with your risk tolerance.

Diversify: Never put all your eggs in one kind of basket. It’s important to make sure your portfolio includes both stocks and yield-producing assets, such as bonds, to cushion you against market volatility. Diversification doesn’t just mean investing in multiple companies either; investigate ways to invest in different markets, bother national and international, as well.

One final tip: find an experienced financial planner you trust, who “gets” you, your goals, and your timeline, and who can guide you as you invest in your future.

Brad Sherman is a financial planner who is committed to helping individuals and families achieve financial independence and gain confidence with regard to financial issues.

Call or contact him today to see if his services are a good fit for your needs.

Related Reading:

What is Dollar Cost Averaging?

5 Things Investors Get Wrong

5 Big Picture Things Many Investors Don’t Do

Why and How to Get Started Investing Today

Mitigating Your Investment Volatility

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

Behavioral Investing: Men are from Mars and Women are from Venus!

LFS-996518-082214

 

Financial Planning for Millennials: Overcoming the Fear Factor

financial planning for Millennials

What do you think of when you think of Millennials? The media loves to paint Millennials as “adventurous”, “risk takers,” and “thrill seekers.” But, surprisingly, when it comes to financial planning for Millennials, their behavior is anything but risky.

In fact, there is evidence that, while emotions and biases play a large part in Millennials’ investment decisions,  fear leads the list of behavioral influences.

We Millennials grew up during the Internet crash and have witnessed one of the most turbulent market cycles in recent U.S. history. With the financial crisis of 2008, and the housing bust leading to a recession, many of us have watched our parents struggle with financial security and worry about whether they’ll ever be able to retire. Many recent grads have experienced unemployment as a result of the crisis, and many are burdened with significant student loan debt. Good times? Not.

These experiences during their impressionable years have led many Millennials to take an emotionally driven approach to Financial Planning for Millennials and to adopt conservative money habits that analysts have compared to the investment behavior of young adults during the Great Depression.

They tend to be wary of investing in equities, for instance, resorting to a behavioral bias that favors peer narratives and unscientific anecdotes – such as stories of retirement-age people whose nest eggs were destroyed by the financial crisis – over careful data analysis.

In May 2013, Wells Fargo released the results of a study surveying more than 1,400 Millennials, that found that Millennials view the stock market, and most investments, as a risk not worth taking. More than half of Millennials are “not very confident” or “not at all confident” about the stock market and many of the Millennials who do consider investing in stocks see the market as a short-term investment. The survey also found that Millennials’ primary concerns were student loan debt and paying their monthly bills.

In fact, Millennials have not only taken on more student loan debt than any previous generation but they continue to struggle in a challenging job market. With many Millennials remaining unemployed or underemployed, and with bills and debt as their top priorities, they have very little disposable income for investing. Many, according to a Pew Research poll released in October 2013, did not even begin thinking about saving or establishing a 401(k) until about five years into their careers.

Additionally, a UBS Wealth Management survey report featured on Bankrate.com found that, more 39% of the Millennials surveyed – more than any other age group – said that cash is their preferred way to invest money that they don’t need for at least ten years. That’s three times the number who chose to invest in the stock market, despite the fact that the S&P 500 has gained 17% over the past year while most cash investment yields remain below 1%.

The Danger of Playing it Safe

The problem with short-term stock investment approaches and dipping in and out of the stock market is that it can work against investors, because short-term investments may be subject to a higher rate of volatility. Instead of looking at the long-term data, which shows that stocks typically outperform other more conservative asset classes over the long run, those young investors are fearful of the short-range volatility, clouding data about the positive potential of long-term investing.

That reluctance to get into the market can be problematic for long-term portfolio growth because, without the returns from stocks, it can be difficult to reach savings and retirement goals.

Bigger is Not Always Better…When Finding a Financial Advisor

With the crash of the big banks and the negative publicity surrounding Wall Street financial firms, Millennials became a generation that looked at financial professionals with mistrust. Instead, they rely more heavily on the Internet, social media, and personal networks for financial advice. Their experience with market volatility and lack of job security has had a significant impact on their attitudes and behaviors toward investing. With very little disposable income after bills and debt payment, Millennials want to feel a sense of security with their investments.

When it comes to working with a financial professional, ‘old school’, traditional banking services are of no interest to them. Bigger is not better in their minds; a smaller, more independent financial planning firm may be able to offer a more hands-on and collaborative approach to investing that Millennials feel more comfortable with.

It’s important to Millennials that they find someone they can trust and who can relate to their concerns and be open to new ideas and methods of investing. Sherman Wealth Management understands that being a part of the investing process is a must in financial planning for Millennials. We fill a role for clients who can no longer relate to, or trust, the large financial institutions that once held a stronghold in the marketplace. The professionals at Sherman Wealth Management provide a personalized plan for investing and help our clients navigate through the difficulty of prioritizing financial obligations.

Remember how it was the overconfidence of the large financial firms and irresponsible investors that brought us the financial crisis in the first place? That Millennial reluctance to let history blindly repeat itself may turn out to be a pretty good thing after all!

Learn more about Financial Planning for Millennials and our Financial Planning services.

Related Reading:

5 Planning Tips for New Parents

LFS-1143605-030915

What is Dollar Cost Averaging?

Dollar Cost Averaging

The concept of dollar cost averaging is investing a set amount of money at regular intervals. This might mean a percentage of every paycheck that is used for investing or a specific dollar amount. You might start with as little as $50 a month or $50 a pay period and that will begin to create a portfolio that pays for future needs.

Advantages of Dollar Cost Averaging

1) Establishes a habit of investing. One of the largest benefits is you begin to pay yourself first and take care of future needs today. Establishing a habit of setting aside a little money for tomorrow will help you live within your means, have more thoughtful budgeting, and be better prepared.

2) The investment is built into your budget, and you learn to live on what remains. The interesting thing about money and finances is that you tend to spend what you have. If there is a little less in the account each month you will adjust spending to accommodate for what you have. Even if it does not appear that there is money for investing you might be surprised how easy it is to “find” a small amount that can be earmarked for investments. A simple thing like bringing lunch twice a week instead of eating out can result in saving over $50 a month to use for investing.

3) Dollar cost averaging purchases shares at a set time each month regardless of where the investment price is. This means if the price is lower you purchase more shares. If the market is higher less shares are bought. The result is a greater tolerance for market fluctuations because you gain a better understanding that the markets move every day.

4) No Large Sums Required to Begin. Dollar cost averaging can be started with small amounts of money. One possible strategy is to increase monthly contributions at least annually. The more you raise the contribution amount the larger and faster your investments may grow over time.

5) Flexibility. Monthly contribution amounts can be changed at any time. The amounts can be raised or lowered depending on life events that impact your budget. In a perfect world the contributions would always increase, but sometimes that does not match real life events. The ability to adjust contributions reduces risk and allows for greater flexibility to meet current demands.

6) Great long-term strategy. Building a portfolio from the ground up can be accomplished through dollar cost averaging and regular contributions. Your investment should grow over time through both additional contributions and portfolio growth. As you receive bonuses or other financial windfalls you can make additional one time contributions as your finances allow.

When it comes to investing there are no short cuts. Starting early and making regular investments will help to provide financial security and accounts that will build over time. When you start early you are less tempted to take on more portfolio risk and are better able to reach long term financial goals.

The future is uncertain and setting aside a little each month to pay for long term financial needs is one of the soundest ways to pursue financial security.

“Dollar cost averaging does not protect against a loss in declining markets. Since such a plan involves continuous investments in securities regardless of the fluctuating price levels, the investor should consider his or her financial ability to continue such purchases through period of low price levels.”

Learn more about our Investment Management services.

Related Reading:

Tips for Millennials to Understanding the Stock Market

5 Things Investors Get Wrong

5 Big Picture Things Many Investors Don’t Do

Why and How to Get Started Investing Today

Mitigating Your Investment Volatility

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

Behavioral Investing: Men are from Mars and Women are from Venus!

 

LFS-1112149-013015

5 Things Investors Get Wrong

unnamed

Humans have a tendency to behave irrationally when it comes to money. Here are the five things investors get wrong that can harm their returns.

Believing They Will Beat the Market

Study after study shows that investors, including professionals, continually under perform the S&P.

In their most recent SPIVA (S&P Indices vs. Active) report, released in September, McGraw Hill Financial found that more than 85% of all funds underperformed the S&P 500, the index found to represent the overall market. (1).

What’s scarier is the fact that individual investors do even worse. In a 20 year study conducted by Dalbar, a financial services research firm, the average investor has seen a return of just 2.1% compared with the S&P’s annualized return of 7.8% (2).

What causes this under performance?

According to Dalbar the biggest reason for this under performance by investors is due to irrational behavioral biases. These include panic selling, under-diversifying, and chasing momentum (3).

Chasing Hot Stocks 

In a study done by the University of California Berkley, as well as UC Davis, researchers found that investors are much more likely to purchase shares in companies that have recently been in the news (4), bidding the price of these stocks up.

Additionally many investors make the mistake of trying to chase performance by buying investments that have already risen significantly. A 2011 study by Baird, a wealth management firm, suggests that investors generally chase short-term performance by buying funds that have risen in the short run, and selling those that have performed poorly (5).

The same can be said about the market as a whole where investors tend to purchase stocks after they have seen a large rise, and subsequently sell into weakness (6).

In short, investors sell low, and buy high.

Ignoring Fees 

You probably know that fees are important, what you may not realize is just how important they are.

Take for example two 30-year-old investors who each contribute $5,500 annually to their IRAs. They both achieve 9% annualized returns, before fees, over the next 35 years. The only difference between them is that one investor pays annual fees of .5%, while the other investor pays 2.5% in total fees. Over the course of their working career, investor A will have accumulated $1,059,859.21 in their account while investor B will have $682,190.80.

This is a hypothetical illustration only and is not indicative of any particular investment or performance. Return and principal value may fluctuate, so when withdrawn, it may be worth more or less than the original cost. Past performance is no guarantee of future results.

In this example, Investor B’s IRA will be worth less than 65% of Investor’s A account as a result of a 2% difference in fees!

Not Re-balancing

While buy-and-hold is usually a good strategy for most people, it is sometimes necessary for individuals to make slight tweaks to their investments.

This is particularly important if you have had one asset class or investment rise or fall significantly more than the rest of your portfolio. In this case it is a good idea to re balance your portfolio in order to realign it with your target allocation. This ensures that you not only maintain diversity, but also that you buy low, and sell high, by buying assets that have fallen significantly and selling assets that have risen.

Turning to the Wrong People for Advice 

Financial advice and information has never been more accessible to the average investor than it is today. Between TV and the Internet, investors are bombarded with information on a daily basis. Unfortunately not all of this information is sound.

Investors should consider carefully the source of any advice they receive, watching out for potential conflicts of interest. Before making any investment decisions you should carefully consider all options, and consider speaking with a financial advisor.

Learn more about our Investment Management services.

Related Reading:

Tips for Millennials to Understanding the Stock Market

What is Dollar Cost Averaging?

5 Big Picture Things Many Investors Don’t Do

Why and How to Get Started Investing Today

Mitigating Your Investment Volatility

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

Behavioral Investing: Men are from Mars and Women are from Venus!

References:

1. http://us.spindices.com/resource-center/thought-leadership/spiva/

2. http://www.thestreet.com/story/11621555/1/average-investor-20-year-return-astoundingly-awful.html

3. http://www.advisorperspectives.com/commentaries/streettalk_100814.php

4. http://faculty.haas.berkeley.edu/odean/Papers%20current%20versions/AllThatGlitters_RFS_2008.pdf

5. http://www.rwbaird.com/bolimages/Media/PDF/Whitepapers/Truth-About-Top-Performing-Money-Managers.pdf

6. http://theweek.com/articles/487000/sell-low-buy-high-are-investors-being-stupid-again

LFS-1101254-011915

5 Big Picture Things Many Investors Don’t Do

5 Big Picture Things

These simple strategies can make a big impact on your long term portfolio.

Investing and finances can be overwhelming and confusing. Having so many options available, how is an investor to choose which direction to go. For those who seek to understand, it can become paralysis by analysis, where the more you study, the more you realize you need to know. With all of its complexity, simple investment strategies can be very effective, if the right choices are made.

Here are 5 Strategies most average investors don’t focus on, but should.

  • Have a thought out strategy with a purpose. A common mistake of investors is to put money in an account without a lot of thought as to the goals you want to achieve. Starting an investment fund without goals is like driving in a car with no destination in mind. Without a purpose for the money, it is impossible to measure the success or failure of the investment.
  • Start Early with a Time Horizon. Starting early gives your money more time to grow. The longer the money is invested, the better it can weather market fluctuations and the more likely you are to successfully reach your goals. Along these same lines, set specific goals around a time horizon. How long will each bucket of money be invested? This is a very important piece to your overall strategy because it will help evaluate the specific investments that will be most beneficial. If you are 15 years away from your goal, investment choices will be much different than if you are 5. The closer you get to the destination, the less able you are weather market fluctuations. This should be considered in your overall strategy.
  • Increase The Amount Invested Each Year. When looking over your investment strategy, separate the performance and the contributions. The performance is how much your money has grown through your investment strategies. Contributions are the dollar amount that you have added to your investment accounts. These two factors make up the total growth of your portfolio. Both of these numbers are important to your overall strategy. The account performance should be reviewed independent of contributions to help you stay on track with the right investment choices for your risk tolerance and time horizon. The amount you have added in contributions is what you have built into your budget for long term financial goals. When you increase those contributions each year, your account should grow significantly faster. Small increases are often not felt in the monthly budget.Let’s say you currently contribute 6% from your paycheck into your 401k. In addition to that you are putting $50 a month into your IRA and $50 a month into a  college fund. At the beginning of the year, increase your 401k contribution by 1%. Now you are putting away 7% in pretax dollars for retirement. Then the next quarter increase your IRA contribution to $75 a month and the quarter after that, increase your college fund contributions by $25 a month. These small increments will barely be noticed in your monthly budget. The $25 a month increase is less than $1 a day. If you are earning $50,000 a year, the 1% increase with your 401k is only around $21 a paycheck if you get paid bi-monthly, in pretax dollars. Meaning your paycheck will be reduced by less than $20 a paycheck due to the pretax allocation. If you increase the contribution at the time of your annual raise, it will only be noticed in the form of larger investment accounts.
  • Review your asset allocation as a whole picture. When you have separate investments for different financial goals, it is more of a challenge to see your portfolio in a complete picture. Having investments with different companies can increase these challenges. When you have a 401k at a current job, and maybe one or two from previous jobs, they are more difficult to keep up with. Then you might have current investments for retirement, college and savings for your first home. Taking a holistic view of all your investments will help to ensure you have the best asset allocation possible. When your allocation gets out of whack, you might end up taking on more risk than you are comfortable with, without realizing it. It is not always possible to have all your investments under one roof, especially with a current 401k. However, including these investments in all financial reviews will help you stay on track for your overall investment goals as well as ensuring your asset allocation and risk profile are appropriate.
  • Understanding what you can control. In life we like to have control over our current and future destinations. Happiness and success often come from recognizing what we can control and focusing on that. Investing is no different. We cannot control the markets and we cannot control the economy. There is a host of circumstances and events that are outside of our control. Stressing and worrying about those things is not beneficial. You can control spending and investment rate. You can control which investments you choose and the amount of risk in your portfolio. Staying focused on these elements will lead to higher comfort levels which will encourage staying the course.

Financial investing success has more to do with implementing sound strategies, rather than luck or great market timing. It is more about staying the course, than picking the “hot” stock that will make you a millionaire.

Learn more about our Investment Management services.

Related Reading:

Tips for Millennials to Understanding the Stock Market

What is Dollar Cost Averaging?

5 Things Investors Get Wrong

Why and How to Get Started Investing Today

Mitigating Your Investment Volatility

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

Behavioral Investing: Men are from Mars and Women are from Venus!

LFS-1082064-121814

Behavioral Investing: Men are from Mars and Women are from Venus!

Behavioral Investing

While no person falls neatly into statistical averages, as humans, we are all emotional beings and subject to all different kinds of behavioral biases when it comes to investing. There are three major ways in which men and women differ when it comes to behavioral investing.

Investment Goals and Strategies: According to the Wall Street Journal, finance professors Brad Barber and Terrance Odean, women tend to focus more on longer-term, non-monetary goals. Women generally associate money with security, independence and the quality of their life and their families’ lives. Women have a ‘safety first’ mentality. Generally speaking, women are more inclined than men to wear seat belts, avoid cigarette smoking, floss and brush their teeth and make regular doctor visits. They even have been shown to be 40% less prone than men to run yellow traffic lights. Men, on the other hand, who tend to be more competitive and thrill-seeking by nature, often focus on the short-term track records of their portfolios, incurring larger overall returns, and tend to be more risk tolerant. In contrast, women tend to be more averse to risk and are more skeptical. When it comes to investing and planning for their future, women shy away from uncertainty and will take a longer time to make investment decisions, are more methodical in how they go about research, and ask more questions.

Both men and women should make sure that their investment styles and horizons match their overall financial goals. For women, this may mean taking on more risk. As they become more familiar and understand the ups and down of the stock market they will naturally become more risk tolerant. For men, this may mean focusing more on longer-horizon goals, rather than on short-term trading track records and larger gains.

Women Risk Averse
Prudential’s study Financial Experience & Behaviors Among Women

 

The Learning Curve: A 2012-2013 Prudential study on women investors reveals that women are more receptive to financial research and advice than men. Women seek help more often. Men tend to enjoy learning on their own and take a more independent approach, like the internet,  while women prefer learning in a group setting. Women rely more on personal networks with friends, family, financial planners, and they take a networking approach to gathering information. They often require more of a financial advisor’s time and resources, but are looking for a trusted relationship to be established, one  they can rely on long term. Men, however,  prefer to teach themselves and are more self-directed learners, using the Internet (more often than women) to gather information and are more likely to claim they understand financial matters than women. In actuality,  knowledge levels are not high for either gender.

Thus far, evidence does not support, however, whether one source of information or learning technique is more or less effective than another.

Information Sources Used By Men Vs Women
Source: Source: Women & Investing, Gender differences in investment behavior. FINRA Report August 2006

 

The Confidence Factor: Women tend to be thorough and take more time to make decisions than men. Several studies, including a national survey by LPL Financial, show that women tend to research investments in depth before making portfolio decisions, and the process, as a result, tends to take more time. Women also tend to be more patient as investors and consult their advisors before adjusting their portfolio positioning, whereas men are more prone to market timing impulses. Men veer toward overconfidence while women lean towards indecisiveness and insecurity.

Overconfidence can lead to taking too much risk. While women risk missing out on some investment opportunities in taking more time to make decisions, men’s generally higher impatience when it comes to seeing investment returns makes them more likely to attempt market timing, and prone to loss when the timing is off. Women are less afflicted than men by overconfidence, or the delusion that they know more than they really do and are more likely (than men) to attribute success to factors outside themselves, like luck or fate.

Ledbury Research

Yet, taking too little risk, due to lack of confidence, can hurt your investment goals just as much as overconfidence. When it comes to investing for the long term, taking risk is not a luxury. Insecure investors can confine their results by investing too conservatively, nearly as much as their overeager counterparts could do by excessive trading and risk-taking.

Meanwhile, to help avoid rash decisions and market impulses, men may benefit from implementing a systematic investment strategy and a periodic, rather than continuous, review of their accounts and rebalancing. They may want to consider becoming even more open to professional financial advice. Women may also want to review the efficiency of their investment allocations across their portfolios to counter the negative impact of mental accounting. In addition, they may want to consider attending financial education seminars to help boost their confidence levels and ability to make timely, well-informed investment decisions.

Men Vs Women Confidence Level
Source: Women & Investing, Gender differences in investment behavior. FINRA Report August 2006

 

Call Brad Sherman at Sherman Wealth Management for information on what investment strategy is right for you.

Learn more about our Investment Management services.

Related Reading:

Tips for Millennials to Understanding the Stock Market

What is Dollar Cost Averaging?

5 Things Investors Get Wrong

5 Big Picture Things Many Investors Don’t Do

Why and How to Get Started Investing Today

Mitigating Your Investment Volatility

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

LFS-981494-080414

YOLO (You Only Live Once) So You Need A Retirement Goal

Yolo Retirement Goal

When you read through blogs or scroll through hashtags and memes on social media, there is a recurrent theme among millennials regarding the live-for-today sentiment. Whether it’s the acronym, #YOLO (You only live once) or the older, maybe not-so-cool phrase, ‘Carpe Diem,’ we are constantly reminded that we should stop worrying about the future and focus on today. But when it comes to your finances, is society sending us a detrimental message?

When addressing one’s plans for retirement, it is sometimes difficult to find a happy medium between the avoidance of financial responsibilities and the overwhelming, anxiety-inducing worry over one’s financial future. Below are two very common thought processes that I see often.

1) I am not worried about the future now, I’ll deal with it later

Unfortunately, our day-to-day pressing needs and our live-for-today goals become the priority and we cannot focus on or visualize what is not right in front of us. We tell ourselves, ‘I’ll do it tomorrow.’ Whether it’s not participating in a 401K because the extra monthly money is needed for utility bills or prolonging the start of a college savings fund for your child because you have mortgage payments to make, you are setting yourself up for a worrisome retirement.

It is important that you stop and visualize, in vivid detail, a big retirement goal. Are you visualizing being able to enjoy the finer things in life or are you just hoping to maintain the lifestyle that you are living today? What details do you see when you make this visualization?

Consider these important factors while you are visualizing:

If I continue at today’s rate-of-saving, what will my savings be at retirement?

Do I have children? Do I plan to have more children?

Do I plan to send my children to college?/Can I afford college tuition?

Do I own a home? Do I have a mortgage?

Have I planned for rising health concerns as I get older?

If something should happen to me, will my family be taken care of?/What kind of debt will they incur?

2.) I worry so much about my future financial position, that I sacrifice my daily happiness

Studies have shown that intense worrying about money or financial situations can affect many aspects of your life from mental health, to relationships, to career. When consumed with worry over your finances, it can inflict on your ability to focus thus creating a distraction and inability to enjoy the present.

While it is important to plan for the future, it should not be so overwhelming that it interferes with one’s day-to-day abilities. Ask yourself:

What am I really worried about?

Is it something in my control? If so, am I taking the necessary steps?

If it is not in my control, what steps can I take to ease my anxiety?

Do I have a financial advisor that can help to address financial concerns and alleviate unnecessary worry?

Whether you identify more with the first or second way of approaching your finances, or possibly somewhere in the middle, it is important to address your financial concerns with a trusted financial advisor. Unnecessary worry can cause you to feel paralyzed, out of control, and unable to make the right financial decisions concerning your retirement. However, failing to address future financial responsibilities, and avoidance altogether, can prove to be counterintuitive, creating anxiety and worry at a later date. Suddenly financial responsibilities show up at your door and you no longer have the option to ignore or put off. In taking small steps along the way, you can gain control of both your finances and your worry.

Call Brad Sherman at Sherman Wealth Management today and set up a no-cost financial consultation.

Learn more about our Retirement Planning services.

Related Reading:

Four Things Entrepreneurs Can do Now to Save for Retirement 

Finding Financial Independence

Your 401K Program: A Little Savings Now Goes a Long Way

How Much Money do you Need for Retirement These Days?

The Benefits of Saving Early for Retirement

Advantages of Participating in Your Workplace Retirement Plan

LFS-926223-051514