4 Investing Mistakes Even Smart People Make

Anyone can make a mistake

We all learn from our own mistakes. But when you’re making critical decisions regarding your investments, any blunder can have serious consequences on your financial future.

Here are some mistakes even the smartest people make — and some proactive steps to guard against them.

A step off your plan could lead to a tumble

1. Going off-plan.

Altering your investment portfolio based on yesterday’s top performer or today’s daily news may end up hurting investment returns. Many studies — including a 2014 report from financial research firm DALBAR, Inc. — have found that individuals who buy and sell stocks on their own often generate lower returns than if they had just purchased and held a Standard & Poor’s 500 Index Fund.

It is important to develop a long-term investment plan and stay the course in order to reach your financial goals. This plan should be designed to provide a clear roadmap for achieving a range of needs and goals, from paying monthly rent or mortgage and saving for college, to investing for retirement, during both up and down markets.

Try not to get carried away by your emotions.

2. Letting your emotions take over your decisions.

The ability to stick with a consistent investment strategy is often jeopardized by fear, greed, and nervousness. These emotions can cause investors to move their money into safer positions and conservative investments which may not grow enough to cover retirement or other long-term costs.

While the financial markets rise and fall without warning, soaring one day and dropping the next, it is vital to stay focused on your long-term investment plan.

And remember, over time, each asset class will take its turn as a leader or laggard. Avoid impulsively selling an under performing investment and stay the course with a diversified portfolio that is able to withstand inevitable short-term rises and dips in the market.

Remain alert when it comes to taxes.

3. Being unaware of how taxes affect your returns.

Be aware of your tax bracket and how tax consequences impact your total investment return. Taxes can greatly impact your investments – both while you are working and in retirement.

If you are working and have many years until you need to access your money, your taxes and strategy are a lot different than when you are retired and pay taxes as you withdraw money from the returns generated within a workplace retirement plan.

Taxes are highly individualized based on financial situations and can often be quite complicated. Consulting with your financial adviser and accountant is a smart strategy to consider in helping to craft a retirement income plan that takes taxes into account.

Try not to be too hasty when adjusting your investments.

4. Changing your strategy due to interest rates.

Interest rates have been held at historic lows since 2008, a move by the Federal Reserve to push down the cost of borrowing and spark economic growth. The Fed has indicated that short-term interest rates will likely increase this year, which could cause short-term stock market volatility and depress bond prices, as rising interest rates tend to push bond prices lower.

Despite these coming changes, do not overreact to market volatility. Higher interest rates should not alter your long-term investment strategy if your assets are invested diversely across stocks, bonds, and real estate. (businessinsider.com)