Whether the markets are up or down, it can be tempting to buy or sell to try to improve your position. Will it be the right move? Before you take action, learn about these common investing mistakes:#1 Taking ActionListening to news headlines may tempt you to take action. But staying in your seat may prevent you from making a mistake during a period of increased volatility.
Historically, U.S. equity returns have been positive following sudden market downturns. Staying in your seat may help position you to capture the recovery.#2 Timing the MarketMarket timing means trying to predict when the market will have a positive or negative return in the near future.
Most often, investors are unable to determine the perfect time to sell or buy, and may lose money in the process. You are better off focusing on your long-term goals and contributing to your portfolio than attempting in vain to time the market.#3 Chasing Past PerformanceYou've likely read this phrase in an investment brochure: 'Past performance is no guarantee of future results.' That's because past performance offers little insight into a fund's future returns. Choosing to invest in a fund based on its past performance could actually hurt your portfolio because it is common for best to become worse#4 Failing to Manage EmotionsEmotional investing can be very risky and may not align with your long-term goals.
Reacting to the headlines is an example of recency bias, which involves being influenced by recent news events or experiences.#5 Putting All Your Eggs in One BasketWhile it may be tempting to focus your investments in U.S. stocks, particularly following a period of relatively strong performance, doing so could keep you from achieving your investment goals. According to Dimensional Fund Advisors, about 40% of the global opportunity set in stocks lies outside the U.S., so failing to invest globally may restrict your ability to capture higher expected returns.A Financial Advisor Can HelpI believe one way to help increase your odds of avoiding investment mistakes is to work with a competent, ethical financial advisor who will place your interests first.
Your financial advisor's goal is to help you design an investment strategy that will help you move closer to achieving your goals and work with you to ensure you're still on track – in good times and bad.John Frisch, CPA/PFS, CFP®, AIF®, PPCTM, is a financial advisor and the managing director of Savant Wealth Management's Manassas, VA office.Savant Wealth Management is a Registered Investment Adviser. You should not assume that any discussion or information provided serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment and financial professional(s) regarding your unique situation.
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