Top 10 Mistakes When Planning for Retirement
#1 Emotional Attachment to Investments
“How do I make my retirement money last as long as I do?” Since 1997, I’ve rendered over 700 “second opinions” to help people solve this question. Sometimes, just a few adjustments will put a financial plan on the right track. Other times, a new investment approach is needed. Here is the beginning of my series: The Top 10 Mistakes (Investors Make) When Planning for Retirement – and how to avoid them.
It has been said that individual investors are good at buying stocks, but not at selling them. It is easy to become emotionally involved with your investments, especially if you had a hand in selecting them, or if they hold sentimental value (for instance, you inherited the stock or you worked for the company). Selling an investment that has declined from what you paid for it can also be hard. It is one thing to see a “paper” loss on your brokerage statement, but quite another to accept a permanent loss by selling the investment.
My parents bought a cabin in North Carolina in 1994. They then spent the next twenty years retreating from Florida summers to enjoy cooler (and less humid) mountain air. After a time, it became more difficult to maintain the second home from a distance, and the 10-hour drive seemed a lot longer. Ultimately, they reached a point when they knew they should sell the house. “Should” is the key word. It took my objective financial advice, and missing the three grandkids, to persuade them to sell. They profited nicely, but it still broke my mother’s heart.
So, you see, in no way am I suggesting it is easy to sell something that you have become emotionally invested in, but it can, and should, be done when the “investment” no longer serves its original purpose (like my parents’ cabin) or when something else would be better (like my parents’ income-producing investment portfolio). I’ve found that sometimes, when we need to make an uncomfortable decision, we start with what we want to do (as irrational as it might be) and then find some logic to support the decision. When that happens, ask someone you trust to give you a candid, second opinion about your situation (like my parents did). If the person is objective, he’ll give you new insight, and won’t start with your conclusion and work backwards!
Next week, we’ll focus on another dangerous mistake: inadequate diversification.
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.