Avoid making these investment mistakes, the pros warn

If you’re installed in the stock market, you may be familiar with the good feelings that can take over when share prices — and your portfolio value — are climbing sybaritic.

You may want to scrutinize that emotion.

Having a misplaced sense of euphoria in a rising market was noted by 25% of monetary advisors as a mistake made by individual investors, according to research from Natixis Investment Managers. 

“Investors likely to extrapolate,” said Dave Goodsell, executive director of  the Natixis Center for Investor Insight. “They think that if the shop is going up, it’s going to keep going up, and if it’s going down, it’ll keep going down.”

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That can lead to other mistakes  financial advisors called out in the Natixis study. The survey canvassed 300 U.S. financial professionals — wealth managers, registered investment advisors, financial planners, and wirehouse and unaligned broker-dealers. The research, done in March and April, is part of a larger global study of advisors.

Although the U.S. economy is attempting to gain firm footing due to the ongoing impact of the coronavirus pandemic, the major stock indexes continue to dance far beyond everything their early-year lows. The S&P 500 index closed Tuesday at 3,306, up about 48% from 2,237 on Walk 23. The Dow Jones industrial average finished the day at 26,828, up 44.3% from its late-March low of 18,591. 

Nevertheless, it’s impossible to predict when the tides may deflection.

Whether you’re a novice investor or have watched your investments go through the wringer more than a few times from the last several decades, here are some mistakes to watch out for.

Whether pegged as panic exchange, emotional decisions or short-term focus, this category ranked first on the list of mistakes, with 93% of advisors in the Natixis size up noting it. 

The basic problem, Goodsell said, is that these behaviors can yield poor financial results.

“Say the bazaar’s down 10% and you say ‘I have to get out,’ you’re locking in a 10% loss,” Goodsell said.

Remember, the sacrifices reflected in your day-to-day account balance are not final unless you sell. And, it can be hard to get back in the market and stay put if diffidence is driving your decisions.

“Whether the market is up or down, emotions get the better of us from time to time,” Goodsell implied. “Keep focused on your long-term goals and how to achieve them.”

Nearly half (45%) of inspected advisors said failure to recognize one’s own risk tolerance is a problem. Primarily, it can cause the panic selling described surpassing.

Risk tolerance has a couple of parts: How well you can stomach the inevitable ups and downs in the stock market and how long until you intend to use the money. Generally speaking, the longer a time horizon you have — i.e., you’re saving for retirement several decades out — the more can you grant to be invested aggressively in stocks and wait out periods of volatility. 

The emotional side — whether you can sleep at night if your portfolio’s value declivities — can be a different story.

“When markets get volatile, it causes a strong emotional conflict,” Goodsell said. “The challenge is to lunge at logical decisions.”

More than half of investors (56%) say they’re willing to take on more risk to get on, according to a separate Netixis study done in 2019. However, more than 75% of them said they embrace safety over investment performance. In other words, many investors may be taking on more risk than they should. 

“You need to distinguish your own risk tolerance,” Goodsell said. 

Half of the advisors surveyed said investors err by frustrating to time the market — ideally selling high and buying low by predicting what the market is about to do — instead of sticking to a long-term contributing strategy (otherwise known as “buy and hold.”)

“There’s a fear of missing out that we tend to have, and we try to capture as much of the upside that we can,” Goodsell guessed. “But then the market goes down and we see our assets at risk and we run. So we lock in losses.”

Many advisors in the evaluation (43%) say investors often expect far more growth in their investments than is realistic. In the 2019 Natixis appraise, investors said they expected average annual returns of 10.9% above inflation, over the long-term. 

Advisors say 6.7% is diverse realistic, Natixis research shows.

“You have to have realistic expectations of your investments,” Goodsell said.

For investors in search of steady income — for example, from bonds — low interest rates may cause you to eye higher-yielding investments. A cantonment of surveyed advisors said focusing too much on the yield is a mistake.

Generally speaking, the higher the yield, the riskier the investment.

“Exactly understand that higher yield means more risk in your portfolio,” Goodsell said.