5 Mistakes DIY Investors Make

With the proliferation of the Internet and continued expansion of online investment tools, the role of an Investment Advisor is now of crucial importance. Personal investors have access to more information than they ever have before, but wading through the data to find that path to success and discipline still requires the eye of a trained investment coach. Given the daunting amount of different investment advice, options, funds, accounts,  stocks, bonds, annuities, and timelines available to investors planning for your future is intimidating to say the least. When you take the inherent danger that follows bad investments into consideration , it quickly becomes clear your retirement isn’t worth that risk, and should instead be left to a professional. The following five points are some of the more common DIY investor mistakes that a qualified investment advisor can help you avoid, while better planning for your future.

1) Buying “cool” stocks, or giving too much attention to brand loyalty
This is one of the most common mistakes of beginning investors. Although you might feel a certain pull to invest in a company whose products you already support, it’s important to remember that you’re not buying their product; you’re buying their future performance as a company. In the long run the advantage of having a globally diversified portfolio is much bigger than the cool feeling you get when you buy your favorite companies stock.  Remember, your investments’ future earnings are more important to your well being than owning a fraction of a “cool” brand.  On top of this, usually the “cool” stocks that people buy are extremely massive companies, which have a lower expected growth rate than small cap companies.

2) Investing Too Conservatively
With the previous point in mind, it’s important to not be overly conservative when it comes to planning your future. Ever since the crash of 2008 new investors have been very skittish when taking on risk, many opting out of the stock market entirely. That being said, it’s important to remember the old adage that “without risk, there is no reward.” A financial professional can better assess the highs and lows inherent with ownership of  stocks. A more evenly balanced portfolio (that means one with stocks), while carrying an additional degree of risk, offers much greater rewards to the investor, and under a watchful eye it will continue to grow for years to come.

3) Hoping to beat the market “bad gambling”
This tip, more than almost any other, is extremely important to new investors. We’ve all seen a movie or heard a story with someone offering “a deal too good to be true,” and when it comes to investing that old cliché is worth its weight in gold. While we can all think of an example when a company’s stock value went through the roof seemingly overnight, it’s important to remember for every success story there are many more of failure and bankruptcy. Putting everything on a single stock or position is just as risky as taking your life savings to Vegas and hoping for the best at a roulette table. Any investment you care about should be made as part of a balanced portfolio and a long-term plan.

4) Budgeting for the short-term instead of long-term
This is a surprisingly overlooked aspect of financial planning, but it can make a world of a difference when it comes to continuity. When plans are made for the near future (say next month) costs are often underestimated and the bills can quickly stack up before you realize you’ve blown your budget. When budgeting it’s better to make an annual list of your needs and then work from that point, as you tend to more accurately estimate expenses and allow for more generous margins of error with greater lengths of time. In fact, one study of college students found that monthly expenses were often underestimated by as much as 40%, but yearly budget projections actually overestimated expenses by 3%.

5) Ignoring your investment horizon
To be frank, you need an investment coach to accurately accomplish your goals. Many new investors forget that investments are made for a purpose, and if you don’t have access to your money when you need it that investment has failed you. Different accounts have different tax implications that must be matched with your time horizon and age.  If you are putting away money for retirement that is not for 20 years, then you should not invest your money conservatively.  Your risk tolerance should be directly correlated with your time horizon for your investments.  You can be more conservative with investments that you will need in a short time frame.

By Jimmy Hancock

Are You Coachable?

I will admit that I am happy that the San Antonio Spurs won the NBA title this year. I have been a Spurs and Tim Duncan fan for many years. Now that I have made all the Heat fans mad, I will explain what a lead in like this had to do with investing?
After the finals ended I heard an interview with Sean Elliott who played for and won a championship with them several years ago. In the course of the interview he was asked what he attributed the success of the Spurs (they have won several titles over the last decade). “Was it their coach or their star player or some combination of both?” His answer is where the relationship between basketball success and investing success come together.
San Antonio’s star player is Tim Duncan (one of the NBA’s all-time greats). Elliott observed that while the coach, Greg Popovich (acknowledged as one of the best in the game right now) is a superb coach, Duncan has given Popovich permission to coach him and that Duncan’s leadership of the team meant that the other players had bought in as well. Now, in an age of “me-ism,” in professional sports (and in life in general), this is something that is highly unusual. Most collegiate and professional “stars” have never seemed to have caught on to the fact that there is no “I” in t-e-a-m!

What is a coach?
When it comes to investing, most investors (even Warren Buffet had a coach—Ben Graham) could benefit from a coaching relationship. However, like Duncan, for the coaching relationship to be a successful one, the individual must give permission for the coach to “coach!” Absent that permission the coaching experience must, of necessity, fail!
A coach, aside from teaching and even re-teaching fundamentals on an ongoing basis (something that is necessary in all coaching relationships) and helping to put it all together for an investor has other important responsibilities to the relationship. Perhaps most importantly a competent investment coach will refuse to allow an investor to execute any strategy that he or she believes is harmful to the investor’s long-term goals.
In other words, the coach will refuse to be an enabler or facilitator of negative behavior and will say NO—as well as provide the necessary discipline to keep the investor on course towards the realization of his or her long-term goals.
Absent this permission to coach, any competent coach will necessarily refuse the engagement and, if already engaged and the investor wishes to change the terms of the relationship, terminate it when the investor becomes “un-coachable!”

Are you coachable?
So the question for all investors is: “Are you in the hands of a competent coach or is your advisor an enabler or facilitator who will allow you to do whatever you wish—even if they know it is harmful and detrimental to your long-term investment success.
Are you coachable and will you give permission to be coached? Are you willing to be an active participant in the coaching process or do you wish to just sit back, passively, and “trust” and “hope” that your adviser is working in your best interests? If it is the latter, you are not coachable!
Will you allow your investment coach to say NO to you when necessary and supply the necessary discipline to enable you to succeed as an investor?
Are you ready to be coached toward attaining a successful, long-term investment experience?
Last, but not least, if you think you don’t need a coach, keep in mind that the best of the best, whether in athletics, entertainment, business or the professions all have coaches to help them reach the highest plateaus of success in their chosen endeavors.
I would like to hear from each of you. Are you coachable?

by Jim Hancock

Comment on this Blog, send me an email: jhancock@proinvestmentcoach.com, or call me at 208-520-4674.

Wednesday Wisdom from Main Street Money

Matson On Facilitators

It’s my belief that financial advisors don’t want to upend the gravy boat, and thus tend to tell clients what they want to hear. Instead of helping you fight your instincts, emotions, and perception biases, they inadvertently use them against you. There is good news and bad news in that scenario. The bad news is that if you have the wrong advisor, one who’s not really a coach, you are in danger. The good news, as an investor, is that if you have the right coach, and the right support group, you’re probably going to do fine.

Excerpts from Main Street Money by Mark Matson

Elections Impact on the Market

Now that the election is over, investors are wondering what the future has in store for their portfolios. The reality is that while elections may have short term impacts on the markets, over the long run, the impact is minimal. A Free Market System is based on capitalism, which always finds a way to thrive. Our structured portfolios are based on a long-term investment philosophy and will be more efficient than active management if and when taxes increase. Our portfolio managers at Matson Money are prepared to rebalance if necessary to ensure you maintain your expected risk tolerance level.
So what should you, as an investor do now?

1. Stay positive. Nothing beneficial has ever come out of being negative.

2. Get educated to break the investor’s dilemma.

a. Fear of the future leads to trying to find someone who can predict the future.

b. Since nobody can predict the future accurately, investors look to track record investing, which academically has proven to be disastrous.

c. Trying to find the right answers leads to information overload, which leads to frustration and emotion-based decisions.

d. Since we as humans gravitate toward pleasure and retreat from pain, we break the rules of prudent investing and sell investments that are doing poorly and buy what’s increased in value.

e. This, in turn, leads to performance losses, which leads to more fear of the future. The investor’s dilemma starts all over again in a never-ending cycle.

We, as investor coaches, are here to help you break the investor’s dilemma and tune out all the media hype of doom and gloom. Every month we offer educational classes to help you understand what’s really important in investing. Our ultimate goal is to guide you along the road to true investing peace of mind.
Call us to find out when the next investor coaching session is and reserve your seat.

Words of Wisdom from Main Street Money

Becoming a Seasoned Investor

Seasoned in my mind, means several things, such as:

  • Being able to withstand physical hardship, strain, or exposure.
  • Being able to bear up under hard times.
  • to be competent with a skill or ability.
  • When you are seasoned, you can see the truth about a situation.  You are not naive.  Naive means deficient in worldly wisdom or infomed judgment, lacking in experience, or to learn from experience.

When you are seasoned, you become prudent.  But here’s the catch: Most investors are not mature or seasoned, nor are most advisors.  They repeat the same mistakes over and over again ad infinitum, without really learning.  Unseasoned investors chase markets.  Unseasoned investors also panic in down markets.  They stock-pick, they invest in track records, and they market-time like crazy.  That last type of investment behavior really ticks me off, and I see it all the time.

Excerpts from Main Street Money by Mark Matson

 

 

 

Key Investment Questions

Seven Questions to Ask Before Investing:

We have all heard of the seven deadly sins, things that you should never do or you risk the harshest

of punishments. But many people don’t know about the seven deadly questions, involving your

investments. There are seven questions that one must answer before dropping a dime on investments,

otherwise their money could be lost in the fiery pits of… well you know where. Making investment

decisions isn’t easy, especially if you are just entering the game. There are a lot of details that many

people don’t think about until it’s too late. So, if you want to avoid the eternal pain of poor investment

plans, ask yourself these seven questions.

1. “Why?” It’s a simple question, but it’s often the hardest one to answer. Why are you investing,

and what do you hope to gain from it? In other words, you must set specific goals. Maybe you want

to save for retirement, maybe you want to send your kids to college, or maybe you just want some

breathing room from everyday expenses. Whatever the reason, it’s important that you define why you

investing your money and what goals you wish to accomplish in doing so.

2. “What is my time frame?” When can you expect to earn your money back? This all depends on

what kind of investments you make. Most of the forms of investments which you can cash out of at any

time, such as stocks, bonds, and mutual funds, often leave you with the risk of not getting back all that

you paid in. Many other investment options will limit or restrict the opportunities that you have to sell

your holdings. Make sure you are aware of these before you enter the game.

3. “What am I going to get out of it?” What can you realistically expect to earn on your

investments? Having an unrealistic idea of playing the stock market and striking it rich could leave

you simply striking out. Most earnings, as millions of people encountered in the past few years, are

dependent upon the market, and can rise or drop based on market changes. Other investments, such as

bonds, have fixed returns that aren’t as susceptible to market changes.

4. “What kind of earnings will you make?” Very few times when investing does a wad of cash

appear in your mailbox if you’re successful. Many times your success is paid to you in things like

potential for earnings growth, as in real estate purchases. Other times it can come through interest

or dividends. Knowing the details of your payback can help you make better decisions when you are

paying in.

5. “What’s my risk?” And here comes the basic balance in investing, risk versus reward. The higher

the risk, the higher the potential reward. Overall there is no guarantee that you will get your money

back or receive the earnings promised to you. Unless you have your money in a savings account or a

U.S. Treasury security, both of which are backed by the federal government, your money is essentially

unprotected. Make sure that the risk you take is worth the reward that you expect to achieve.

6. “Is my money diversified?” We can all remember our mothers as some point or another

saying, “Now, don’t put all your eggs in one basket.” Well your mother’s wise words ring true in terms

of investments as well. Certain types of investments do better in certain situations, so by diversifying

your investments, you are spreading your eggs across many baskets. That way if a certain industry tanks

or sector is struggling, you will have plenty of other baskets holding your money safe and sound.

7. “What is the effect of taxes on my investments?” It may seem like the nightmare of early April

IRAs/401(k)s/403(b)s

Could An IRA, 401(k), Or Any Other Qualified Plan Be Your Only Retirement Savings Solution?

Absolutely not, here is the problem…

The money in your IRA/401(k) or other qualified plans is not all yours!  As much as 40% of it (maybe more) belongs to the government because your invested money is ONLY tax-DEFERRED, not tax-EXEMPT.  And you eventually have to pay tax on every dollar in your account even if you leave it all to your family.

When it comes to retirement planning, simply starting is often the hardest part.  We can help you find the best retirement planning tools but also the motivation to begin.  We can help you determine how much to save and the best way to do so including IRAs, Roth IRAs, 401(k)s, 403(b)s, 457s, and Non-Qualified Plans.

Here is the Solution…

Take some time to get a Retirement Planning Analysis.  This will solve two problems (1) determine which retirement investments are the best for you, and (2) how much you need to save to reach your retirement goals.

Contact us at info@proinvestmentcoach.com to set an appointment or call us at 800-332-8327.

Five Basic Tips for Creating a Solid Retirement Plan

We all know what the retirement picture is supposed to look like.  We spend our whole life working toward that magical retirement age when your golden years begin–the hobbies, the travel, spending time with your grandchildren.  However, with a rocky economy and volatility in the markets your picture might not be so clear.

Consider these basic tips to see to it that your retirement is spent doing what you love.

  1. Set your retirement goals:  Think about what you want your retirement picture to look like.  Does it involve living in a paid-off home, buying a motor home, or relocating to a house on the beach?  Do you want to donate to charities, or provide for your children and grandchildren?  What will it take to make it all come together?
  2. Start Planning now:  Whether you are just beginning or looking to retire in five years, start taking the steps to prepare now.  Establish IRA’s or participate in your employer-sponsored 403b or 401k plan and fund them with as much as you can.  One goal would also be to increase your contribution each year to help insure that you have enough money to retire.
  3. Reevaluate your life expectancy:  It is no secret that with medical technology and living a good healthy life we are living longer than ever.  According to the Society of Actuaries, a 65-year-old man has a 41% chance of living to age 85, and a 20% chance of surviving to age 90.  A 65-year-old woman has even better odds.  She has a 53% chance of living to age 85, and an impressive 32% chance of reaching age 90.  With these statistics in mind, ramping up your savings is more crucial than ever.
  4. Determine your Social Security benefits:  Did you know the longer you delay retirement, the larger your Social Security checks grow?  While you can officially start drawing funds at age 62, if you hold off until age 70, you’ll double your benefit amount.  Even if you wait until age 66, your Social Security checks will grow by one-third.  While working past age 65 might not appeal to you, the higher payout amount certainly should.  There are many more strategies to get the most from Social Security, especially if you are married.  To explore your options and determine when you will begin to draw Social Security benefits, visit www.SSA.gov.  They even have an online retirement estimator to help guide your decision.
  5. Work with a trusted Financial Coach:  If you really want to get the best out of your retirement plan, it’s best to place it in the hands of a capable retirement specialist who will coach you through the process, recommend appropriate investment tools, offer practical advice on savings, and keep an eye on your retirement portfolio.  For more information on working with a coach versus an planner click on the tab at the top of this page called Why You Need a Financial Coach.

We hope this has been helpful to you.  If you would like more information click on the contact button and we will send you more information or set up a time to meet with you.

By Jim Hancock