Common Investment Mistakes to Avoid by Partnering with a Financial Advisor

Investing can be a complex and intimidating process, especially for those who are new to the world of finance. Many investors make common mistakes that can significantly impact their financial goals. However, by partnering with a knowledgeable and experienced financial advisor, you can avoid these pitfalls and make more informed investment decisions. In this blog post, we will discuss three common investor mistakes and how working with a financial advisor can help you avoid them.

A Lack of Diversification: Why Diversification is Important?

One of the most common mistakes investors make is failing to diversify their portfolios adequately. Putting all your eggs in one basket can be extremely risky, as it leaves you vulnerable to the performance of a single or small number of investments. A financial advisor can guide you in creating a well-diversified portfolio that spreads your investments across various asset classes, such as stocks and bonds. You may diversify further by investing in mutual funds or ETFs with exposure to international and emerging markets as well as the US market. By diversifying, you can reduce the impact of market volatility and potentially increase your chances of generating consistent returns.

Emotional Investing Mistakes

Emotional investing is another mistake that can lead to poor financial outcomes. When investors allow their emotions, such as fear or greed, to drive their investment decisions, they often make impulsive choices that do not align with their long-term goals. A financial advisor can provide an objective perspective and help you make rational decisions based on your financial objectives and risk tolerance. They can act as a calming influence during market downturns and prevent you from making knee-jerk reactions that could harm your portfolio's performance.

When the market is down, selling your investment and going to cash is an example of an emotional investment decision. Fear of losing additional money prompts you to withdraw funds from the market in order to protect yourself. It might appear to be a good plan, but it is difficult to recognize when it is best to reinvest your money. You’ll most likely miss robust rebounds that can occur quickly after a market downturn. The impact of missing the market’s best recovery days or weeks can be profound. 

The graph prepared by Dimensional Fund Advisors below highlights the impact of being out of the market for even a short time. It serves as a reminder to investors that rather than try to time the market, attempting to buy on the market’s best days or sell out to avoid the worst, investors should stay in the market long-term. 

What Value Does a Financial Advisor Add? 

Additionally, a financial planner can work with you to develop a personalized financial plan that takes into account your income, savings, taxes, healthcare and investment objectives. They can help you set realistic goals, and develop a spending or withdrawal strategy in retirement. By having a well-thought-out plan, you can stay focused on your long-term financial goals and avoid making hasty or ill-informed investment decisions.

Based on analysis from Vanguard, a financial advisor has the potential to add or exceed client returns by 3% over time. The figure below shows the value-add of best practices in wealth management:

Partnering with a Financial Advisor

Investing wisely is crucial for achieving your financial goals, and partnering with a financial advisor can help you navigate the complex world of investing and avoid common investor mistakes. By diversifying your portfolio, keeping emotions in check, and having a solid financial plan, you can significantly improve your investment outcomes. A financial advisor can provide guidance you need to make informed decisions and stay on track towards your financial goals. 

Need help managing your investments? Work directly with an experienced, licensed financial advisor at Sensible. Schedule a call today so we can show you how we’ve helped hundreds of people like you invest for a retirement they love.

‍

‍

‍

This blog article is for informational and educational purposes only.
‍

‍
Sources: 
Investopedia
Dimensional Fund Advisors
Vanguard

‍

‍