5 Costly Investment Mistakes

Things have been really chaotic lately with COVID-19 and how it has changed how you work and live. When things get chaotic, it’s really easy to forget about things like your old work 401(k) or your investment and savings accounts. The problem is that when you lose track of these things, it opens the possibility that what’s happening with your account can be hurting your ability to meet your long term goals and needs. That can mean having to work longer before being able to retire, having to make tougher choices about options for your kids’ education, and limitations on the lifestyle you can earn for yourself during your career and beyond. Wealth provides optionality; a lack of wealth delivers obligation.

With that said, here is a list of five of the most costly investment mistakes. My hope is that this list provides at least a starting point for identifying and addressing potential critical failures in how your investments are being managed.
1. Assuming your portfolio is being managed well because it is being managed professionally.
We know there are great restaurants and bad restaurants, stores we like and stores we don’t, friendly dentists and mean dentists. In any profession, some people are much better than others, and investment management is no exception. Just because it is a large investment firm or bank managing your portfolio does not mean they are actually doing a good job. Do they reach out to you and talk about your investments, talk about your goals, and make sure your investments are doing what they need to do for you? If not, maybe it is time to consider working with someone more invested in your best interests.

2. Not caring or knowing about what your portfolio is doing.
It is one thing to not pay attention to your investments during a bad market time or a really good market time to avoid making emotional decisions. It is another entirely to put the blinders on for years, hoping that it will all work out. Not all investments are created equal, and not all investments are suitable for you. It’s your money and your future needs relying on the performance of those investments, so it’s important that at least a couple of times a year, that you check in on them and make sure they are still meeting your goals and needs. Good investment professionals will regularly follow-up with you so that you don’t have to worry about keeping tabs on your investments all of the time. 
3. Working with an advisor who is not a fiduciary.
A financial advisor who works as a fiduciary has a legal responsibility to ensure that they are always working in your best interests ahead of their own. It’s not a difficult standard to live up to, so why do so few put it in writing? It’s simple – because their business model relies on taking advantage of clients and not being legally culpable for their work product. Being a fiduciary does not guarantee that the advisor will always get everything right – there is nothing certain about investing. However, they do have to be able to show that what they did put your best interests first and that what you are invested in is reasonable for your situation. If your advisor is not a fiduciary, find one who is, because there is no dollar amount that is worth vacating that legally enforceable standard of conduct.
4. Overdiversification of investments.
A common mistake I see when looking at client statements from other firms is a long list of different mutual funds and ETF’s, with a little bit being thrown into each. And when I mean long, I’m talking 10, 15, 20, or more investment vehicles being used at once. What I believe happens is the adviser uses a template provided by the firm to make investment choices in some broad categories. Maybe they do some homework on the funds, maybe they don’t, and they pick a couple from each basket. Well, when you have 8-10 baskets and you pick two funds for each, that gives you 16-20 funds. 16-20 funds can mean literally thousands of positions, many of whom are overlapping, and there’s just no way that a coherent strategy can exist at that point. You’ll likely end up with mediocre returns at best because it averages out any actual outperformance, while giving the advisor plenty of scapegoats to blame, when in fact it is the approach that is causing the problems.

Diversification is heralded as an important quality of investing in order to minimize single stock exposure risk by having your investment spread in a number of companies. That has a place, no argument from me. But that risk needs to be done in a measured approach, consciously choosing what investment vehicles you use. If your quarterly statement looks like a CVS receipt, chances are you are overdiversified and should consider a second opinion.
5. Forgetting that it is your money, not your advisor’s.
At the end of the day, no matter what happens, remember that your investments are funded with your money, not your advisor’s. It is one thing to disagree and your advisor is there to provide professional advice, which you may elect to take or not take. But if you don’t understand the investment, or if you don’t like how you or your investment is being managed, it is your money, and you are empowered to do with it what you want. I hear too often about financial advisors that pressure clients, bully clients, demean clients and/or their spouses, none of which is ethical or professional. There are a number of great people in our line of work who will treat you with dignity, who will act in your best interests, and who will make sure you and your investments are being respected. Accept no less than that, because you deserve to be treated well no matter the size and scope of your investments. 
If you have any questions about the contents of this article, or if you would like to schedule a free consultation and review of your investments, please email me: steven@briggswealth.com

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