Objective information about financial planning, investments, and retirement plans

Avoid these 9 Investing Mistakes

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Investing is at best a risky proposition and sometimes even the best investment ideas don’t work out. However avoiding these 9 mistakes can help improve your investing outcomes.

Avoid these 9 Investing Mistakes

Inability to take a loss and move on 

It’s difficult for many investors to sell an investment at a loss. Often they prefer to wait until the investment at least gets back to a break-even level. I think its part of our competitive nature. Investing is not a competitive sport, leave that for our Olympians.  When reviewing your investments ask yourself “Would I buy this holding today?” If the answer is no, it’s time to sell and invest the proceeds elsewhere.

Not selling winners

I’ve seen many investors over the years refuse to sell highly appreciated holdings, all or in part. There is always the risk that you’ll sell and the price will keep going up. But sometimes it’s best to protect your gains and sell while you’re ahead or at least consider selling a portion of the holding and reinvesting the proceeds elsewhere. The latter can be part of your portfolio rebalancing process.

Investing without a plan

When you take a road trip in your car you generally have a map to help you to get to your destination. Investing is a means to an end, a road map to achieve your goals such as providing a college education for your children or funding your retirement.

Without a financial plan how will you know how much you need to accumulate to achieve your goals?  How much risk should you take?  What types of returns do you need to shoot for? Are on track toward your goals?  Essentially investing without a plan is much like hopping in the car without any idea where you are headed. 

Trying to time the market

It’s difficult to predict when the market will rise and fall. Even if the stock market is following a general trend, there will be up and down trading days. Trying to buy and sell based on those daily fluctuations is difficult. While there are professional traders who do this for a living, for most of us this is a losing proposition.

Worrying too much about taxes

Taxes can consume a significant portion of your investment gains for holdings in a taxable account. While nobody wants to pay more tax than needed, in my opinion paying taxes on a gain is almost always better than dealing with an investment loss.

Not paying attention to your investments

Your portfolio needs to be evaluated and monitored on a periodic basis.  You should reevaluate a stock when the company changes management, when the company is acquired by or merges with another company, when a strong competitor enters the market, or when several top executives sell large blocks of stock.

This applies to mutual funds as well. Manager changes, a dramatic increase or decrease in assets under management or a deviation from its stated style should all be red flags that cause you to evaluate whether it may be time to sell the fund.

Failure to rebalance your holdings  

This goes hand in hand with having a financial plan. Ideally you have an investment policy for your portfolio that defines the percentage allocations of your investments by type and style (stocks, bonds, cash, large stocks, international stocks, etc.).  A typical investment policy will set a target percentage with upper and lower percentage ranges for each style. It is important that you look at your overall portfolio in terms of these percentages at least annually.

Different investment styles will perform differently at various times.  This can cause your portfolio to be out of balance. The idea behind rebalancing is to control risk. If stocks rally and your equity allocation has grown to 75% vs. your target of 60% your portfolio is now taking more risk than you had planned. Should stocks reverse course, you could be exposed to over-sized losses.

Assuming recent events will continue into the future  

The first 15 plus years of this century have been tough on investors. The market tumbled during the 2000-2002 time frame and then again in 2008-2009. More recently the stock market dropped steeply and suddenly in the wake of the Bexit vote in the U.K. These events have instilled fear into many investors. It’s hard to blame them.

However this fear and the assumption that recent events will continue into the future might also be keeping you from investing in the fashion needed to achieve your financial goals. Taking the events of recent years into account is healthy, however letting these events paralyze you can be destructive to your financial future. This holds true for stock market drops as well as protracted bull markets.

Building a collection of investments instead of a well-crafted portfolio

Are you investing with a plan or do you simply own a collection of investments?  Great football teams like my beloved Green Bay Packers have a better chance of winning when everyone embraces and executes their role in the game plan for that week.  In my experience you will increase your chances for investment success when all of the holdings in your portfolio fulfill their role as well.

Nothing guarantees investment success.  Avoiding these 9 investing mistakes as well as others can help you increase your odds of being a successful investor.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services. 

Denver Wins! Time to Go to Cash?

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The Denver Broncos just won Super Bowl 50 and its looking like Peyton Manning will go out a winner. Good news and a feel good story? Not for investors. The Super Bowl Indicator says a win by an AFC team is a bad omen for the stock market for the year. 

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Super Bowl Indicator

The Super Bowl Indicator says that if a team from the old American Football League (AFL) wins the Super Bowl that the stock market will finish down for the year.

This indicator has held true for 40 of the previous 49 Super Bowls played prior to this one, including the past seven years.

The New York Giants, one of the earliest teams from the NFL, won the Super Bowl in 2008 but as we all recall the stock market had its worst year since the Great Depression with the S&P 500 being down 37% for the year. I guess a little thing like the mortgage fueled financial crises trumps a “sure fire” stock market predictor like the outcome of the Super Bowl.

The January Effect 

The Stock Trader’s Almanac says that if the month of January is down then 75% of the time the stock market will be down for the year.

The January Effect says that stocks that were sold off in December for tax-loss harvesting purposes will rally in January when investors buy them at reduced prices.

With the S&P 500 and the Dow Jones Industrial Average both down over 5% for the month this clearly didn’t happen.

Time to go to cash? 

Clearly investors should not peg their actions to any type of indicator like the Super Bowl Indicator or any of the others of a similar nature that have cropped up over the years.

The best course for investors has always been to have a financial plan, have an investing strategy and stick to their plan.

The Bottom Line 

The Super Bowl Indicator is fun and part of the Super Bowl hype. At the end of the day there is really no correlation between the performance of the stock market and who wins the Super Bowl. Investors should invest based upon their goals, their time horizon and their risk tolerance. I will say this, however. The market will be way up in 2017 after my Green Bay Packers bring the Lombardi Trophy back to its rightful home, Lambeau Field. OK no predictions, I have no idea what the market will do after the Packers win (which is a sure thing, I hope).

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

What I’m Reading – Super Bowl I Rematch Edition

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This week’s Monday Night Football match-up features my Green Bay Packers hosting the Kansas City Chiefs at beautiful Lambeau Field.

This is a rematch of the first Super Bowl (actually called the NFL-AFL Championship) played in the LA Coliseum in January of 1967. I was nine and even at that point a Packer fan for life. There were 30,000 empty seats and neither network (the game was televised by both NBC and CBS) preserved a recording of the game. An old tape copy from an individual was recently restored. This is a far cry from the hype that surrounds the Super Bowl today.

The Packers had 10 future Hall of Famers plus Coach Lombardi. The Packers won 35-10. let’s hope for a similar result this time around as well.

Here are a few good financial articles to read while waiting for the kickoff:

Christine Benz discusses Dos and Don’ts for Mutual Funds Capital Gains Season at Morningstar.com.

Barbara Friedberg shares the 20 Dumbest Moves First-Time Investors Make at Go Banking Rates.

Sarah O’ Brien tells us that Financial planning is beyond investments, retirement plans at CNBC.com. 

Jim Blankenship warns us about Identity Theft Protection  at Getting Your Financial Ducks in a Row.

Elizabeth O’ Brien discusses When financial ‘advice’ is really a sales pitch at Market Watch.

I continue to write for Investopedia, here are a few of my recent contributions:

Betterment’s all-ETF Online 401(k) plan

Restricted Stock Units: What to Know

Closed-End Funds: A Primer

Enjoy the game. Go Pack Go!

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

What I’m Reading – NFL 2015 Season Opener Edition

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I write this on a sad date, September 11. The morning of September 11, 2001 I was waking up in a hotel room in Clinton, IA and would be doing an employee benefits seminar for Ernst & Young later in the day. The first plane hit the tower and the cable news commentator speculated that it had gone off course. We of course learned the truth shortly afterwards. What a sad day and I’m sure none of us will ever forget where we were or what we were doing.

On a happier note the NFL season started last night with the Patriots beating the Steelers and most importantly there was no news about the firmness of Tom Brady’s balls. The real season starts on Sunday and I will be rooting for America’s team The Green Bay Packers.

It’s starting to look like fall here in the Chicago area; here are a few good financial articles to curl up with this weekend:

Mike Piper answers a reader question Should I Still Contribute to a 401(k) if I Plan to Retire Early? at the Oblivious Investor.

Barbara Friedberg shares Top Tax Strategies for Retirement at Investopedia. 

John Rekenthaler discusses Where Active Management Succeeds (or Fails) at Morningstar.com. 

Mark Hulbert shares Opinion: An investing lesson from the 9/11 tragedy at Market Watch. 

Jim Blankenship explains RMDs From IRAs  at Getting Your Financial Ducks in a Row.

I continue to write for Investopedia, here are a few of my recent contributions:

Robo-Advisors Face First Market Downturn Test

Why Market Timing Should Be Left to the Pros

Annuities and Baby Boomers: The Pros and Cons

Have a great weekend.  Yes the recent stock market volatility is unsettling but always take a deep breath and fall back on your financial plan before reacting to this or any stock market or economic activity.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

What I’m Reading NFL Conference Championship Edition

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Its conference championship weekend in the NFL. The winners of the two games on Sunday will play in two weeks in the Super Bowl.  The Indianapolis Colts play the New England Patriots in the late game.  The first game has my beloved Green Bay Packers visiting the defending champs the Seattle Seahawks.  A tough place to win so I’m hoping Aaron Rodgers and the rest of the team are up to the task.

While you are waiting for the game or if you are not into football here are a few financial articles I suggest for some good weekend financial reading:

Jim Blankenship tells us why Debt Consolidation Loans Don’t Work (But You Might Get it to Work For You!) at Getting Your Financial Ducks in a Row.

Ryan Guina asks When Will I Get My Tax Refund? 2014 Tax Year Refund Schedule at Cash Money Life.

Mike Piper answers Why is Currency Risk Bad? at Oblivious Investor.

Barbara Friedberg discusses Monthly Pension Or Lump-Sum: Which Is Better? At Investopedia.

Josh Friedman writes Pimco’s Assets Declined 10% in Quarter After Gross Exit at Bloomberg.

Cliff Goldstein discusses The best time to start taking Social Security at Market Watch.

Alan Roth warns Non-Traded REITs – Warning, Danger Ahead on the AARP Blog.

I continue in my role as a contributor to Investopedia and here are my most recent articles for them:

Why Retirement Advice Is Better But Still Lacking

How To Explain Portfolio Rebalancing To Clients

What To Do When Your Client Behaves Badly

How Financial Advisors Can Help Gun-Shy Investors

Enjoy the rest of your weekend.  Let’s Go Packers!

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital to manage all of your accounts all in one place.  Please check out our Resources page for more tools and services that you might find useful.

 

What I’m Reading – Jay Cutler Superstar Edition

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Far too much time on the local newscasts has been devoted to the demotion of quarterback Jay Cutler to backup for this week’s game against the Detroit Lions.  The Bears have had a dismal season and the very sub-par play of Cutler has been cited almost universally among fans and the media as a main cause.

What I’m Reading – Jay Cutler Superstar Edition

For those who don’t follow the NFL it should be noted that Cutler signed a huge contract extension just this past January that made him the highest paid quarterback in the league.  This means he makes more than Aaron Rodgers, Peyton Manning and Drew Brees to name a few.

As a finance blogger how could I refer to him as anything less than a superstar, a financial superstar to be precise?  His agent clearly did a masterful selling job on the Bears. This is likely why the Bears last great quarterback was a gentleman named Sid Luckman back in the 1940s.

Full disclosure I am an avid Green Bay Packers fan and love the dysfunction that is the Chicago Bears.

In the spirit of Jay Cutler’s superstar agent here are some financial articles that you might find interesting.

3 Reasons Not to Raid Your Retirement Accounts by Eric McWhinnie via Retirement Cheat Sheet.

Retirement vs College Saving in a Nutshell by Jim Blankenship at his blog Financial Ducks in a Row.

The World Economy In 2015 Will Carry Troubling Echoes Of The Late 1990s according to The Economist via Business Insider.

Opinion: The hidden truth about rebalancing your portfolio by Mark Hulbert via Marketwatch.

5 RMD Pitfalls to Avoid by Christine Benz via Morningstar.

Why Does Everybody Recommend Complex Portfolios? by Mike Piper at his blog Oblivious Investor.

14 Holiday Activities to Build Wealth and Memories by Barbara Friedberg at her blog Barbara Friedberg Personal Finance.

I continue in my role as a contributor to Investopedia and here are my last three articles for them:

Is An Online Financial Advisor Right For You?

How To Manage A Cash Windfall

Tips For Managing Inflation In Retirement

Here’s hoping for a long Packers run through the playoffs.  Is that Jay Cutler I hear laughing all the way to the bank?

Check out an online service like Personal Capital to manage all of your accounts all in one place or purchase the latest version of Quicken.  Check out our Resources page for more tools and services that you might find useful.

Photo source:  Mike Shadle and Wikipedia

Are You Ready For Retirement?

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To my readers:

The infographic that was originally included in this post was taken down as was the link to the firm that supplied it due to a malware warning on their site.  Please check out the many other posts on this site in the retirement category and other categories that may interest you.  I apologize for any inconvenience but your online safety in viewing my site is of the utmost importance to me.

Original post without reference to the infographic

Happy Thanksgiving to all of you and to your families.  We are thankful for having all five of us home together and the time we get to spend as family. For anyone with adult kids you know that doesn’t happen as often as we might like sometimes.

As I write this we are sitting out Black Friday as we always do and looking forward to a weekend filled with family, great leftovers, and football. Especially on Sunday when I am hoping for a Packer victory over the Partriots at Lambeau Field.

Retirement is a journey.  I can’t think of a better time to get started or to gauge your progress than now no matter what your age.  Why not take some time over the last month of year to ensure that you hit the ground running in 2015?

What I’m Reading: Pre-Thanksgiving Edition

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It’s an overcast Saturday here in the Chicago area.  Watching some college football and relaxing.  We are looking forward to having everyone home this upcoming week.

Here are a few financial articles I suggest checking out for some good weekend reading:

Keli Grant asks Which country gives the most to charity? at CNBC.com.

Check out Barbara Freidberg’s first piece as a fellow contributor to Investopedia How Advisors Can Help Clients Stomach Volatility.

Jonathan Clements cautions that In retirement, a big house can lead to the poor house at Market Watch.

Sterling Raskie provides An End of Year Financial Checklist at Getting Your Financial Ducks in a Row.

Ben Steverman suggests Maybe You Don’t Need Long-Term Care Insurance After All at Bloomberg.

Mike Piper answers a reader question Are Dividends More Important Than Price Appreciation? at Oblivious Investor.

Here is my most recent contribution to Investopedia Financial Advisor Salary.

Enjoy your weekend, back to college football.  I’m hoping for a big Packer victory over the hated Vikings this weekend as well.  I wish you, your families, and loved ones a wonderful Thanksgiving.

Cutting Investment Losses and Lovie Smith

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English: LOVIE SMITH, of the Chicago Bears, in...

Lovie Smith is the Head Coach of the Chicago Bears.  A column in the Chicago Tribune this past weekend suggested that Smith might be on his way out at season’s end.  Smith makes a bit north of $5 million per year and his contract runs through the 2013 season.

Smith has had some success with the Bears, leading them to the Super Bowl after the 2006 season and to the NFC championship game after the 2010 season (where they lost to my Green Bay Packers).  Last year the Bears started 7-3 but faded and missed the playoffs.  This year they started 7-1 but currently stand at 8-5 with a key game against the Packers this weekend.  Looks like another potential meltdown for the underachievers.  In fact Smith has missed the post season 4 of the past 5 seasons.

The investment decision process

Investors are faced with the decision about where to best deploy their investment dollars on a regular basis.  Sometimes this decision involves taking a loss on an investment and moving on.  Maybe this involves a once high-flying mutual fund or perhaps a stock that looked promising.   When trying to guide a client through this decision process, the first and main question that I ask is “… would you buy this investment today?”  Often it’s tough for investors to admit that they made a choice that didn’t pan out.  However I would offer that the ability to take a loss when warranted and move on is a trait of successful investors.

The same process is also undertaken (or should be) by companies.  Has our investment in a new business line or in the acquisition of that competitor paid off for us?  More so what are the future prospects?  Is this still a good use of our capital and in the best interests of our shareholders?

In the case of the Bears, if they fire Smith they are assured of having to pay his salary for 2013 plus that of any assistant coaches who might be under contract if they are let go by a new coach.  The decision should be about whether Smith is the right person to lead the team into the future.  Pro Football is a business; the Bears are the 8th most valuable NFL franchise according to Forbes.  In spite of a lack of success on the field (their last two championships were in 1985 and 1963) they have a loyal fan base and play in the NFL’s second largest market.  Will a continued decline in the team’s performance hurt the value of business?  Some teams have seen immediate success from a new coach; take the San Francisco 49ers last year.  On the other hand there are no guarantees.

Love your family not your investments

I have encountered a number of folks who have a sentimental attachment to a particular investment. This might be due to having held it for a long-time or perhaps due to having inherited it from their parents.  This has no place in investing.  I’m not advocating trading for its own sake, or selling an investment on temporary weakness.  Rather you need to consistently review your holdings and your overall portfolio.  If changes are needed then make them.  In some cases this might involve taking a loss, admitting you made a poor investment decision, and deploying your money elsewhere.  This needs to be done within some sort of plan or framework such as an Investment Policy Statement.

In the case of the Bears, this transplanted Packer fan hopes the Bears not only keep him around for 2013, but that he is around for years to come.  I suspect many Bear fans are hoping the team eats his 2013 salary and makes a better coaching investment.

Please feel free to contact me for a review of your investment portfolio.

Photo credit:  Wikipedia

 

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