3 Tragic Retirement Investing Mistakes to Avoid

It can be easy to go astray if you're going it alone. Here are three areas where retirement savers tend to get tripped up.

Have you ever seen one of those giant jars of jelly beans where you’re supposed to guess how many are inside? These games can be fun, but that doesn’t mean they’re easy. The reality is, it is insanely difficult to guess how many jelly beans can exist in a small space — especially when you have almost no information to go on.

I recently interviewed financial expert Peter Lazaroff on my Stay Wealthy Retirement Podcast to learn how we can apply the lessons learned from these games to the investment world.

Peter is the author of a new book, Making Money Simple: The Complete Guide to Getting Your Financial House in Order and Keeping It That Way Forever, and he argues that investing does work similarly to these games, even though there are experts who have access to lots of information.

In the global stock market, where there are over 75 million trades per day, you have investment firms pouring billions of dollars into research budgets and trading floors filled with Ph.D.s and experts trying to estimate what a security may be worth. As more and more people guess, there are flaws in their process, but the errors tend to cancel themselves out.

This, my friends, is why passive, low-cost investing has been a winner for such a long time. With enough guesses being made, clear trends emerge and set the pace.

This is also why it’s extremely difficult to beat the market over the long term. Market trends are set by millions of guesses that average each other out, while your personal investing “guesses” could be all over the map.

Don’t Make These Three Investing Mistakes with Your Retirement

At the end of the day, reducing the amount of guessing you make with your portfolio could be the best thing you can do for your retirement. There is no such thing as a perfect portfolio. There is only the one you can stick with for the longest amount of time, which gives you the greatest chance at the best returns.

With that being said, there are some mistakes you should never make with your retirement portfolio if your goal is maximizing returns. Here are the top three errors Lazaroff says he’s seen far too many people make in his career as a money manager:

Mistake #1: Initiating or Expecting Activity for No Reason

Whether investors save for retirement with or without a financial adviser, some of them start to correlate activity with progress. They want to see trades being made in their portfolios or new stocks being purchased at least every quarter. No matter whether these moves are good ones, they make them feel like they’re doing something to reach their goals.

“This need to be active is deeply ingrained in our DNA,” Lazaroff says. And it’s easy to think you’re not helping yourself if you’re not actively managing your portfolio.

But Lazaroff says that’s the opposite approach investors should take, since 99 times out of 100 the best action for your portfolio is no action at all.

“Doing nothing is an active choice,” he says, adding that he thinks a lot of people overthink their retirement and investing strategies to their own detriment.

Mistake #2: Being Too Cheap to Pay for Professional Help

There are a ton of ways to invest on your own these days, but there’s something to be said for hiring professional help to manage your portfolio. After all, what’s more important than the portfolio that represents the collective efforts of your entire working years?

Think of it this way: It’s easy to pay someone to clean your house or mow your yard, right? If you pay someone to do it, there’s little they can do to mess it up. On the flip side, if you decide to take care of these chores on your own, it’s no big deal if you miss a sliver of grass or forget to clean your guest bath.

But, your retirement portfolio comes with higher stakes than your home or your outdoor space. If you make too many mistakes or don’t make the optimal moves, the financial toll can impact your portfolio for decades to come.

Lazaroff says that one of the biggest problems with investing is that it’s easy to do-it-yourself if you want. This gets people comfortable overseeing their money when they have no idea all the details they’re missing out on.

The bottom line: Sometimes you don’t know what you don’t know. And sometimes, hiring a professional can leave you better off — even with a buy-and-hold strategy.

Mistake #3: Failing to Understand Your Time Horizon

No matter how much you love a buy-and-hold investing strategy, it’s easy to get overly excited about click bait news articles or temporary fluctuations that affect your portfolio. But you have to remember that, when you invest money in the stock market, you’re really making a bet that capital works over the long haul. This year’s returns may not be that great, but it’s the returns you score over 20, 30 or 40 years that matter most.

Also keep in mind just how long your time horizon might be — even if you’re nearing retirement. Lazaroff says he frequently hears people in their 50s or 60s say they don’t want to “wait something out” or take too much risk because they’re running out of time, when really, they have plenty of time to grow their money.

This is another area where having professional help with your portfolio can leave you ahead. You may not have a full grasp on how much risk you should take and for how long, but a fee-only financial adviser can help you figure it out.

About the Author

Taylor Schulte, CFP

Founder and CEO, Define Financial

Taylor Schulte, CFP®, is founder and CEO of Define Financial, a fee-only wealth management firm in San Diego. In addition, Schulte hosts The Stay Wealthy Retirement Podcast, teaching people how to reduce taxes, invest smarter, and make work optional. He has been recognized as a top 40 Under 40 adviser by InvestmentNews and one of the top 100 most influential advisers by Investopedia.

Most Popular

Tax Wrinkles for Work-at-Home Employees During COVID-19

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020


Peering Past the Pandemic

Peering Past the Pandemic

I’m looking forward to a time when lunches with the girls (or guys), volunteering and travel will resume.
November 24, 2020
11 Year-End Moves to Lower Your 2020 Tax Bill

11 Year-End Moves to Lower Your 2020 Tax Bill

What you do between now and the end of the year can have a significant impact on how much tax you have to pay next April.
November 17, 2020
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
November 16, 2020
Planning to Sell Your Home in Retirement? Downsize Costs Along With Space

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space

In this hot real estate market, consider the costs of buying and selling a house along with the expenses associated with your new digs.
November 13, 2020