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If you’ve heard it once, you’ve heard it a thousand times: Investors are often their own worst enemy when it comes to achieving the highest potential return on their investments. The main reason for this is that they panic when the market drops, and they dump their mutual funds to “keep from losing more money.”
So we decided to ask financial advisors about the biggest mistakes investors make and the impact those mistakes have on their retirement savings.
The “Battle Between the Ears”
The advisors we spoke to agreed that investors let their emotions get the best of them in times of economic turmoil. “It’s hard to blame them when the media does such a great job of painting a gloom-and-doom picture all the time,” Drew McMillin, a certified financial planner with Southwestern Investments Group, told us.
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Late last year, a longtime client met with a fellow advisor at Southwestern and told the advisor he was certain the economy was destined for a nose dive. Despite all the evidence the advisor presented to convince the client to stick with his investments, the client insisted on cashing out.
“The trigger was emotional, certainly,” Drew said. “Oftentimes, investors, as well as the media, place too much of a correlation between politics and the stock market.”
This client is now reinvested, but he missed a 13% increase in the S&P 500. Not only did he miss the run-up, he had to pay a higher price when he repurchased his investments.
As this investor learned, you can’t outsmart the stock market.
Forget the Past and Take Control
If you’re dealing with the fallout from emotional investing decisions like this, where do you go from here?
“First, accept the fact that yesterday ended last night,” Russell Kizer, a financial advisor with RCM Capital Management, advised. “We cannot go back and change time, but we can learn from our mistakes.”
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Instead, Russell says investors should focus on what they can control. The amount you invest, what you invest in, and how soon you begin investing are all factors you control. And these decisions have the power to impact your retirement savings much more than stock market performance can.
How to Win Over Your Harmful Investing Emotions
You can also take control of your emotions, and the good news is, you don’t have to do it on your own.
“A financial advisor’s role is to coach our clients to keep their emotions in check and remain invested for the long term,” Drew explained.
“Your advisor will guide you step-by-step to keep you focused and updated on the facts of investing as well as keep you on track with your long-tem goals,” Russell agreed.
Find Your Advisor Today
You can find experienced, trustworthy investing advisors like Drew and Russell through Dave’s nationwide Endorsed Local Provider (ELP) network. Your ELP will show you how committed, long-term investing can make your retirement investing plan a success. Find your ELP today.