During his 13 years in the business, Steve Landy, senior financial adviser with Ameriprise Financial in Hartville, has seen investors make plenty of mistakes with their money. His office manages more than $120 million in client assets, and he frequently meets investors who have no clue when it comes to wealth management.
Here are 10 common mistakes he has encountered.
- Not having an investment strategy. Investors should have a financial plan or asset allocation from the beginning that takes into account their time horizon, risk allowance and future contributions.
- Investing in individual stocks. Landy prefers to start new customers in mutual funds because funds are more diversified. There are typically 80 to 100 stocks per mutual fund instead of just one individual security that you’re frequently paying fees on.
- Buying high. In general, it’s better to buy what is not performing at its peak. Whatever was bad last year may be good the next year, and stock that is very high is probably ready to level off.
- Not selling low. Nobody wants to sell a stock for a loss. Everybody wants to hold back until they break even. If the stock is not going to come back within a reasonable time frame, it’s better to cut your losses.
- Acting on tips. Typically, if you are hearing about it, so is everybody else. Unless your source is a financial adviser, it is very risky to act on the tip.
- Paying too much in commission. Rather than paying a per-transaction fee, it’s typically better to pay a flat fee or flat percentage fee per year.
- Making decisions by tax avoidance. Landy frequently sees clients who have doubled their money on a particular stock but won’t sell because they don’t want to pay the tax on it. Capital gains are very low right now, so it’s a good time to harvest your gains.
- Having unrealistic expectations. Everybody wants a 12 percent return with no risk, but it’s just not going to happen. If you can get 8 percent to 9 percent, or really anything above zero, you are doing OK.
- Not knowing your tolerance for risk. Investors frequently buy something and don’t understand that if it can go up 10 percent or 20 percent, it can also go down 10 percent or 20 percent.
- Putting off retirement planning. For many investors, 30 or 35 years seems so far down the road. The first thing you always should do is put into the 401(k) at work at least up to what the employer is matching.
HOW TO REACH: Steve Landy, (330) 877-8507, or Ameriprise Financial, www.ameriprise.com