We all have goals. Just because you’re regularly putting money away, though, doesn’t necessarily mean you’ll reach those goals. An effective plan, however, can show you what steps you need to take to help you realize your dreams—whether short term or long term—and give confidence in your pursuit of them.
Here are four common mistakes investors make that can keep them from reaching all their goals—and information on how planning may help you avoid these issues.
Mistake #1: Putting your investments on autopilot
You feel like you’re in pretty good financial shape already, so you hold off on setting a plan for how to achieve your goals. Or you create a plan, but then life gets busy and you fail to review it on a regular basis because you’re focused on other things.
The birth of a child or grandchild or a change in your employment situation are good reasons to re-evaluate your goals and how your investments are helping you work toward them. You might have remembered to set up a 529 education savings plan for your grandchild, but have you thought about how that could impact your broader financial plan and short- and long-term goals? Don’t assume your previous plan is still going to get you where you want to go.
Avoid the mistake: It’s important to have a conversation with your advisor on at least an annual basis—and more often as your life changes—to ensure your portfolio and asset allocation reflect your current goals.
Mistake #2: Focusing solely on retirement
Saving for retirement is a marathon, not a sprint, and your constantly evolving life means that your retirement goals and ability to save for them will also change over time. As such, retirement is often looked at as the Holy Grail of financial planning—and understandably so. It’s usually what you’ll spend the longest time saving toward,and your preparation for it is crucial to spending those years in comfort.
However, focusing too heavily on retirement can create a financial blind spot around the other important goals for you and your family. Your financial plan should prioritize your goals based on time frame and assist you in funding short-term enjoyment of your life without sacrificing long-term saving.
Avoid the mistake: Talk to your advisor about your short- and long-term goals, and how they relate to your needs, wants and wishes. Your financial plan affects each of these, and small changes may increase the probability of achieving your goals.
Mistake #3: Trying to time the market
When your goal is building wealth, daily market fluctuations—even large ones—shouldn’t be a reason to panic and adjust your strategy. The allure of timing the market to reel-in huge gains can be tempting. However, a volatile market can lead to emotional decisions, undermining your long-term strategy.
Knee-jerk emotional reactions, such as selling when you think bad news is imminent, can significantly hamper your chances of achieving long-term gains. You’re statistically unlikely to avoid the days of major market drops, and keeping your money on the sidelines gives you a major chance of missing out on the days the market rises. Between 1998 and 2017, for example, the S&P 500 Index grew at an annualized rate of 7.20%. If you missed the 10 top-performing days of the market, that annualized return dropped to 3.53%.
A solid financial plan isn’t about speculation, it’s about constantly monitoring and making smart choices. Trust your financial advisor to help you pursue your goals and make decisions based on sound strategy, not emotion.
Avoid the mistake: Use your advisor as a rational opinion to help you avoid making rash decisions. Having a sound plan helps you weather ups and downs in the market with the goal of longer-term success.
