7 Bad Habits That Can Ruin Your Retirement

bad retirement movesAdvisor Paul Merriman put together this list of 7 bad habits that can ruin your retirement for his MarketWatch column.

Saving for retirement is important, says Merriman, “but being a great saver isn’t enough.”

You still have to invest well (or at least not invest stupidly), he argues, and avoid these “seven destructive habits and decisions that can ruin your retirement dreams.”

So what are these seven stupid habits, according to Merriman?

(Excerpts from Merriman’s list are shown below in quotation marks).

“One: Speculating, even with a small part of your portfolio”

“Very few people leave Las Vegas with more money than when they arrived,” writes Merriman. What’s the difference between speculating and investing?  For hints, see our recent blog post on Investing 101: Eight Signs You Are A Speculator.

“Two: Taking too little risk”

Keeping too much money in cash and in bonds will earn you too little return, and can guarantee you’ll get poorer each year as you lose ground to taxes and inflation.  A better way to keep up?  You’ll need to invest part of your portfolio for growth, in stocks or other inflation-fighting assets.

“Three: Owning too much company stock”

This one is a no-brainer, to which I would add that an over-concentration of any stock (not just the company where you work) can be a bad thing.  Almost everyone violating this rule learns this lesson … the hard way.

“Four: Ignoring recurring fund expenses and the internal trading costs of portfolio turnover”

It’s important to keep expenses and trading costs down, but don’t be penny-wise pound-foolish. Not paying for good advice – if you don’t know what you are doing – can totally sink your retirement boat.

“Five: Following the ‘I-can’t-take-it-anymore’ market-timing strategy”

We’ve all seen examples of this one at work. After riding their portfolio all the way down, the emotional investor decides he (or she) can’t take it anymore, and sells out, right at … the bottom.

What happens then? The emotional investor sits it out while the market climbs back up, determined “not to get burned again,” insisting it’s all a head-fake, but then caves and buys back in at the wrong time, because he (or she) can’t stand to sit on the sidelines any longer.

A good advisor can help you stick to a disciplined investment plan, and avoid the roller-coaster gyrations that can make your retirement years feel like a ride on the Incredible Hulk at Universal Studios.

“Six: Investing in familiar, ‘safe’ asset classes”

It’s a big world out there, and sometimes veering “off the beaten path” to include less traditional asset classes can improve diversification, reduce risk and boost returns. The investment world has changed over the years. Sticking to what worked in the seventies, eighties, or even nineties isn’t always a recipe for success in the current decade.

“Seven: Following the siren song of Wall Street in order to beat the market”

A wise investor learns to beware the “too good to be true” pitches from commissioned salespeople.  Says Merriman, “if you fall for their sales pitches, you’re likely to own investments that saddle you with high expenses, high commissions, low returns and (worst of all) a lack of liquidity that can tie up your money forever.”  My personal short list of investment pitches that most investors should avoid at all costs?  Annuities with high commissions and annual expenses, non-traded and (once again) high-commission partnerships and real estate investments, anything pitched by a market-timing newsletter, get-rich-quick schemes that “beat the market” with less risk (sure!), and anything you don’t really understand like currency, options, and hedging plays, as well as black-box insurance products that only rocket scientists (maybe) could fully understand. If you can’t explain it to your 90-year old grandmother in a way she can understand, don’t buy it.

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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