Don’t let these 3 monsters maim your financial future!

By Lance Ludwig, CFP^®

It’s that time of year when ghosts and ghouls get top billing. But while trick-or-treating may be all fun and games, there are three truly scary monsters that can put you in very real danger—at least when it comes to protecting your financial future. The good news is that for every monster, there is a powerful defense. The key is using the right weapons to slay each threat long before it’s able to cause any lasting harm. Are you ready?

• Monster #1: Trying to time the market
  A few years ago, every headline in the financial press was about the ‘aging bull market’ and advising investors to ‘put everything in cash’ to prepare for a market crash. Dan is getting close to retirement, and he heard that warning loud and clear. To protect his savings, he sidelined nearly every penny of his retirement into cash in 2016 and waited for the inevitable. The problem? The ‘inevitable’ downturn didn’t happen until nearly two years later. As a result, he missed out on the double-digit gains that the market delivered in the longest bull market in history.
  
  Jeff and MaryAnn also thought they could time the market. We started working together three years ago when the bull market was in full swing. Just recently, they sheepishly confessed that they have a cash savings account of about $100,000 that they hadn’t included as part of their investable assets. Why? They wanted to wait to invest it until the market dropped. Trying to time the market did not pay off.
  
  Your best defense: Everyone’s dream is to ‘buy low and sell high,’ but in the real world, investing is never that simple. The best defense is to create an investment strategy based on your needs, goals, and level of risk, and then stick to it—no matter how the market is behaving at the moment. Time, not timing, will win in the end.
   
• Monster #2: Investing in that one ‘sure thing’
  One of the biggest mistakes investors make is choosing their investments based on a single fact that they are certain will ensure their success. Kelly is a perfect example. She had read that low-cost mutual funds were the path to riches, so she limited her elections to a single asset class. By neglecting to invest in other assets with slightly higher expenses she missed out on growth that would have far outweighed what she ‘saved’ in fees.
  
  She’s not the only one who has made this error. Joe was convinced that foreign investments were too risky, so he insisted on restricting his portfolio to US equities. That lack of diversification cost him thousands when international stocks outpaced his holdings by more than 20%. Another investor, Ed, was certain his company’s newest product would cause his company’s stock price to triple, so he poured his money into the single stock. A month later, the entire sector dropped dramatically—including his company shares.
  
  Your best defense: As the old adage says, don’t put all your eggs in one basket. Poor investment decision-making often comes from limited knowledge and lack of trusted guidance. If your goal is to do well long term, the best thing you can do is build a highly diversified portfolio that ensures that if one stock or asset class dips, your basket stays full enough to meet your needs.
   
• Monster #3: Failing to plan
  When Gerry came to see me, he had just turned 64 and was excited that his golden years were almost here. He was looking forward to joining his friends on the golf course and finally having time to relax. But when we sat down to look at the numbers, I knew immediately that retirement was a long way off for Gerry. I hated to be the bearer of bad news, but he simply hadn’t saved enough to make retirement a reality. He’d be lucky if his retirement savings would last five years, much less the next twenty or more.
  
  The situation for Patrice and George was just as bad. Even though they had saved well for retirement, when George became ill and needed full-time care at just 70 years old, they didn’t have Long Term Care (LTC) insurance to cover the costs. They were forced to turn to their savings to pay the bills, and within just a few years, their ‘well planned’ retirement account had been completely drained. (To learn more about the Long Term Care insurance and whether it’s right for you, listen to this episode of The Wise Money Show.)
  
  Your best defense: Start planning as early as possible! A Certified Financial Planner™ (CFP^®) is trained to look at every aspect of your finances and your life to help you build a strong, predictable financial future. And if you’re already late to the planning game? He or she can help you look at the facts and create a realistic plan moving forward.

Each of these monsters can be downright frightening. But by knowing what they are and what you can do to protect your savings from damage, you can rest assured that your financial future is safe. And if you need help with the details, let us know. Our team is great at slaying monsters at every time of year!