Your Investments: We are human: You make mistakes, just don’t repeat them

It’s strange because you - your life goes so swiftly. You look up one day you’re a teenager, the next day you’re a grandfather.

Shekel money bills (photo credit: REUTERS)
Shekel money bills
(photo credit: REUTERS)
A couple of weeks ago after we had finished eating dinner, some of us were sitting around the table and I mentioned that I had had a crazy day with seven meetings back to back. For some reason my 8 and 10 year old thought that it would be funny to sit down next to me and have a real financial planning meeting. The 8 year old started and after making some small talk like where she was from and where she lives I preceded to ask her questions about her monthly expenses and income. She had absolutely no clue what I was talking about, but with a big smile on her face tried to answer the questions. Then after asking her what her long-term goals were she got up and walked away, and the 10 year old sat down. The scene basically repeated itself and everyone had a good laugh.
Then it occurred to me that when we raise children we expect them to make mistakes. The goal is for them to actually learn from those mistakes and not repeat them. It’s the same with managing your finances. Mistakes happen to everyone; the goal should be to learn from the miscues and try not to repeat them, again and again.
Writing about the need for financial advisers to help clients navigate big financial decisions, Brendan Mullooly of Your Brain on Stocks, said, “ But I want to dispel an implicit myth about behavioral coaching: it is not predicated upon its recipient being crazy, stupid, or reckless. Nor is it predicated upon its purveyor being a genius, stoic, or super-human. It is predicated upon both parties being human.”
Too often I meet investors who are repeat mistake offenders. In order to have a successful and secure financial retirement, it’s imperative to learn from mistakes.
So here are a few common missteps that if corrected can have an immensely positive impact on one’s retirement.
Tornado - In the summer I sat with someone who was planning on retiring in two years. She had a huge mess on her hands.
Multiple US bank and brokerage accounts, and since she worked in hi-tech in Israel and made the rounds from failed start-up to failed start-up, she had a bunch of different Israeli pension and Keren Hishtalmut accounts. It’s awfully hard to plan for retirement when you have no clue what you own. Not only does having so many accounts make it complicated to get a full financial picture, it can create havoc when the retiree gets older and may not be able to stay in control of the accounts or worse, forgets that the accounts even exist. When a client has multiple accounts her financial adviser should be sitting on top of her entire situation. The professional will not just focus on one account but should assess everything and see how the entire financial situation fits his client’s goals and needs, as well as try and consolidate as many accounts as possible.
Waiting for market to drop - Another mistake that I see regularly is keeping too much money in cash. It goes without saying that an important part of any financial plan is to keep between three and six months of expenses on the side, totally liquid, in an emergency fund. The problem is that I often see investors keep a lot more than even two years of expected expenses in cash. They say that they think the market is high and are waiting for a drop before investing. When I point out that the market dropped 20% at the end of 2018, and ask why they didn’t invest then, they say that they weren’t even aware of the drop. Get your money invested to enjoy the benefits of compounding.
Trading authority - As I have written numerous times as retiree’s age, they usually don’t add someone to the account to execute changes on their behalf. I advise retirees to give a child or a trusted confidant trading authority. This way, if the client can’t fully supervise the account it doesn’t become frozen. More than once I have seen a case where an older client had an individual account, and took ill. They are unable to execute any instructions in their account. This is the time when access to money is extremely crucial, and since the individual is the only one with any authority over the account, the money becomes as good as frozen.
We all make mistakes. Once is enough. Avoid repeating them so that you can have a secure financial future.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.; [email protected]