At some point, all investors face The Big Mistake. Examples of The Big Mistake can be over concentrating your investment portfolio in a particular stock, chasing investment returns, purchasing a Variable Universal Life policy or annuity that you don’t need, misallocating your 401(k) investments, or attempting to time the market.
Our propensity to time the market is only natural. When the market drops, like it did in March of 2020, our instinct is to sell now and stop the pain. When the market shoots up, we tell ourselves it’s time to buy, buy, buy!
Nothing illustrates this better than the flow of money into 401(k) plans in April 2020. According to data from Alight Solutions 401(k) index, 49 percent of all new money contributions into 401(k) plans that month flowed into bond funds and money market. Conversely, 401(k) investors pulled $112 million out of mostly equity target date funds last April — the precise time that global equities began one of the greatest rallies in history.
As the sketch by Carl Richards below illustrates, our odds of avoiding The Big Mistake go up dramatically when we have a good fiduciary advisor who can help us separate our emotions from our investment decisions. The next time you are feeling emotional anxiety over your investments, seek the guidance of a financial advisor who can prevent you from making investment decisions that may jeopardize your long-term financial goals.
Scott Johnson is the CEO of DecisionPoint Financial, LLC. He is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary. He and his firm provide comprehensive financial planning and investment management services to individuals and institutions. Scott can be reached at (480) 553-6249 or scott@dpplanners.com. Visit decisionpointfinancial.com.
DecisionPoint Financial, LLC is a Registered Investment Advisor. All investments involve risk. Risks associated with investing in securities include increased volatility and loss of principal. Past performance is no guarantee of future results. The information herein is educational in nature and does not represent investment advice. All rights reserved. DecisionPoint Financial, LLC © 2021.