Top Five Money Mistakes to Avoid in 2016
Financial Expert and Book Author Ken Weber Asks: What the HELL Are Investors Thinking?
According to a recent study on New Year’s Resolutions in the Journal of Clinical Psychology, spending less and saving more is one of the top five most popular resolutions people make each year. However, less than 50% of those who make resolutions maintain them for more than 6 months. But the good news is that people who explicitly make resolutions are ten times more likely to reach their goals than people who don’t explicitly make resolutions. According to Ken Weber, an independent investment advisor and president of Weber Asset Management in Lake Success, NY, making a plan and sticking to it is crucial for long-term financial success, regardless of whether or not you’re the type of person who makes resolutions each year.
The author of Dear Investor, What the Hell Are You Doing?: Smart and Easy Ways to Fix the Mistakes You Make With Your Money, Weber says that there are five major mistakes investors need to identify in their behavior and change in order to achieve investing success. “Resolve to stop doing dumb things with your money,” Weber said.
TOP FIVE MONEY MISTAKES
Investment Mistake #1: Investing based on the headlines of the day
“The media thrives on attention-grabbing headlines. Without them, you might not buy that newspaper or watch that news program. But headlines come and go, and they almost always have exactly zero relevance to your long-term investment plans,” Weber said.
To change the behavior Weber says: “Ignore headlines. No one knows what’s ahead. Stick to your investment plan.”
Investment Mistake #2: Focusing on dollars, not percentages
“I hear this all the time,” Weber said. “‘I opened my monthly statement and I lost five thousand dollars.’ OK, five grand is real money, but what is the context? If the account was worth $200,000 a few months ago, that $5,000 represents a 2.5 percent drop in value, an amount that is well within normal stock market gyrations. And it’s not a ‘loss’ until the investment is sold. A paper loss (an unrealized loss) is nothing more than illusion. It’s not real. Then too, what was happening in the overall market? If the S&P 500 Index dropped 4 percent during the same period that you ‘lost’ 2.5 percent, you are actually doing quite well,” added Weber.
To change the behavior Weber says: “Focus only on percentages, and even then, make sure you understand what the overall market has been doing.”
Investment Mistake #3: Listening to market “experts”
“The media is chockablock with so-called experts, each of whom gladly pontificates about this investment or that, or about why the stock market is about to rise or fall,” Weber warns. “But the absolute fact is this: no one knows anything for sure. In the aggregate, all the experts are the market, and they are all trying to beat each other.”
To change the behavior Weber says: “Change the channel! Either stop listening to them, or view their prognostications as entertainment.”
Investment Mistake #4: Not understanding what you are investing in
Here’s a Ken Weber challenge: Ask someone who just bought a variable annuity to explain all of the costs and features of their new “investment.” Or the pros and cons of their long/short mutual fund. Or even their mid-cap value fund. Ask why they invested in any specific stock – do they fully grasp the balance sheet of that company, the firm’s strengths and weaknesses, who the firm’s competition is and what risks they represent?
“It’s likely you’ll only get a superficial answer,” Weber said. “And then when they are surprised by something that negatively affects the stock price, they wonder how it could have happened,” Weber adds.
To change the behavior Weber says: “Ask questions. If something is not clear, ask again. And if it’s still not clear, move on to something else.”
Investment Mistake #5: Not separating short-term market fluctuations from long-term goals
“As I often tell clients, ‘look at the markets through a telescope, not a microscope.’ The only thing I can guarantee when it comes to investments is volatility. Markets go up, markets go down. But here’s what I know for sure: A well-constructed financial plan takes market gyrations into consideration,” Weber said. “Too often, however, people are shaken from that plan when the market falls sharply.”
To change the behavior Weber says: “All investing should be done within a fully-formed financial plan, one that takes into account all aspects of your particular financial situation. If you have full faith in your plan it becomes easy to ride through market choppiness,” Weber concludes.
ABOUT KEN WEBER
Ken Weber is a recognized authority on 401(k) plans and one of America’s leading mutual fund experts. With more than 30 years experience in the financial services industry, Weber has been quoted in a host of media outlets including The Wall Street Journal, The New York Times, Money magazine, Barron’s,Business Week, The Journal of Accountancy and Reuters. With a Bachelor’s degree from Hofstra University and a Master’s degree fromBrooklyn College of the City University of New York, Weber founded Weber Asset Management, a fee-only (commission-free) Registered Investment Advisory firm, in 1993.
Weber is also a founding member of Fidelity Investments’ RIA Advisor Council, a member of the National Association of Active Investment Managers, and a member the Financial Planning Association. Weber is author of Dear Investor, What the HELL Are You Doing?: Smart and Easy Ways to Fix the Mistakes You Make With Your Money (available wherever books are sold). He also writes about personal finance for The Huffington Post. Learn more atwww.weberasset.com.
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SOURCE Ken Weber