Avoid these 7 Financial Mistakes
In my fee-only investing practice, I help my clients avoid many of the common mistakes that people make on their road to retirement. Below is a list of the 7 most common investing and financial mistakes that you should avoid as you save for retirement.
Mistake #1 – No tax sheltered income
The best way to save for retirement is through deferring as much income as possible through an IRA or work retirement plan. In 1997, the Roth IRA was established which has turned out to be the best vehicle to save for retirement. No matter your income level, you can contribute to a Roth IRA. Affluent investors utilize “backdoor” contributions as long as they don’t have existing pre-tax IRA’s. (please contact a tax advisor or myself for a full explanation)
Mistake #2 – Tax inefficient investing
It is best to avoid paying short-term capital gains. Instead use short-term losses tactically to offset them. Tax-loss harvesting is a technique used by the best investors to lower taxes while maintaining the risk/return profile of their portfolio. We believe that you should invest in a separately managed account or personalized portfolio rather than a mutual fund to maximize your tax treatment.
Mistake #3 – Investing with no investment philosophy
9 out of 10 portfolios that I give a second opinion on either take the shotgun approach to investing or are not properly diversified. The over-diversified portfolios are invested in six or more mutual funds across the world with no care for valuation. The other investment philosophy that I see is portfolios overweight in the hottest stock that has the most momentum. These portfolios are marked by low returns and high fees.
Mistake #4 – Not Keeping Score
What all the best investors have in common is that they keep score. These investors select a proper benchmark and monitor those results to determine if their strategy is working. They understand the tremendous power of compounding and how exceeding this bar will make more money over time.
Mistake #5 – Not having an Estate Plan
Most of us are guilty of lacking a contingency plan because we believe nothing bad will ever happen to us. Trillions of dollars will be transferring generations over the next decade. While this conversation can be uncomfortable between family members, I advise that you should bring up this topic before your possible inheritance goes to the state.
Mistake #6 – Not fully understanding Social Security rules
With less companies offering Pension Plans, more retirees are relying on Social Security than ever before. Social Security is one leg of your retirement plan and you should work with an advisor who can maximize the most money out of the system. Be sure to work with an advisor who understands the basic techniques to maximize social security.
Mistake #7 – Going it alone
The most successful investors have assembled their own team of all-star professionals. It is in your best interest to hire different professionals to prepare your taxes, invest your savings, and plan your estate. Your team should have letters after their names such as CFA, CFP®, and CPA. These designations mark professionals who are knowledgeable, believe in continuing their education, who maintain strong professional standards, and champion strong ethical behavior.
If you would like to have an accomplished investment professional with a Chartered Financial Analyst (CFA) designation personally manage your investments and a Certified Financial Planner™ advise you on retirement plan, feel free to give me a call at 508-207-8049, visit CGFadvisor.com, or email me at mitch@cgfadvisor.com.
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Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.
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