In one of my more recent articles, I revealed some of the many mistakes that investors make when drawing up their investment strategies, errors that could ultimately pole-axe their chances of ever retiring.
There’s no limit to the traps that share pickers can fall into, so in this piece I’m discussing some more errors that you need to be aware of.
Being too risk-averse
The fear factor is one big reason why many people find themselves unable to create enough wealth to retire comfortably, if at all.
According to a recent survey by comparison website Bankrate, cash investments are the most favoured destination for millennials, 30% of respondents saying that this is their favourite investment destination. The stock market came out in second place.
While at least you know that your money is pretty safe, such an approach can leave you looking at a nasty great black hole in your pension pot when you eventually come to hang up your work gloves.
As Greg McBride, chief financial analyst at Bankrate says: “For investment horizons of longer than 10 years, the stock market is an entirely appropriate investment. Cash is not, and especially if you’re not seeking out the most competitive returns.”
The site quotes the example of a 22-year-old worker who invests 10% of their $50,000 salary in their 401(k) retirement savings plan. If they chose to park their capital in a money market fund yielding 2% they would have $359,000 by retirement. This pales into insignificance compared to the $1.9bn they could expect to retire on had they selected a balanced fund of stocks and bonds which yielded 8%.
There’s a lot to be said for investing early, of course. But if you’re not putting your money to work in the best place to begin with, then stealing a march on everyone else in the retirement race counts for very little.
Not doing your own research
I can’t stress this one enough. As much as I like to believe that the share recommendations I make are 100% right, 100% of the time, I certainly wouldn’t recommend that you use my investment thesis as the sole reason to buy, hold or sell a stock today.
Heck, it’s a rare occurrence that all of us over at Motley Fool Towers are in agreement over the prognosis of any one stock. And we can’t be all right, can we? Take Lloyds Banking Group, for example.
Some like my colleague Alan Oscroft like the bank on the back of its strong cash generation and huge dividend yield. Conversely, Ian Pierce is happy to steer clear of the Footsie business owing to the threat posed by a negative outlook for the UK economy.
And it’s not just us Fools who often find themselves on different sides of the stock divide. According to Digital Look, of the 15 broker recommendations for Legal & General, one rates the stock as a strong buy; six as a buy; four are neutral; and four consider the financial giant to be a strong sell.
It takes more than one view to make a market, of course. And the broader range of viewpoints that you take into account when researching a particular investment destination, the better equipped you are to making a correct decision. There’s no shortage of great investment guides out there so get reading today!
