3 mistakes most investors make
Gather, not disperse.
Over the years, investors have become convinced that proper investing means taking their money and spreading it out among several investment professionals. Over time, many investors accumulate, on average, four advisors and multiple accounts. From their 401(k), Roth IRA, Traditional IRA, brokerage and mutual fund accounts, to their 401(k), Traditional IRA, trust and savings accounts, a family can accumulate multiple accounts with multiple financial institutions.
This dispersal of assets leads to a false sense of “diversification” by “not putting all your eggs in one basket.” The problem is that this strategy really hurts most investors.
Many investors have unknowingly dispersed their assets, resulting in no one person fully managing or understanding their situation, goals, or dreams. Without comprehensive planning, there really is no plan.
1. Misallocation of assets
Most investors have their assets spread out over multiple advisers and multiple financial firms. Neither individual advisor knows what the other is doing, resulting in an uncoordinated portfolio. An advisor at company A could be selling the same asset that an advisor at company B is buying. Unless there is a coach reviewing the entire portfolio, then his money is uncoordinated.
Your asset allocation should always reflect your current position in life, your current goals, future, feelings, and family characteristics. When your hard-earned money is distributed among other advisers and institutions, only you can properly manage your portfolio. Many people are not trained to monitor this correctly and consistently. Unfortunately, the overall plan suffers.
two. Inadequate Correlation Within Investments, Managers and Funds
Needless to say, every investment should be great on its own. The investment, manager, or mutual fund must have a solid track record (I like a ten-year track record). You may be able to select quality investments. That’s not the problem. Where the break occurs is in knowing how these investments interrelate. This is almost impossible to track when one advisor is doing one thing and another advisor is doing the complete opposite.
Let’s think of a recipe analogy. You may have the best ingredients to make your favorite dish. You may even have quality chefs at your beck and call, ready to prepare this dish for you. If you put all these chefs in the same kitchen, but don’t let them know what the other is doing, you’re in for a culinary disaster. You can see that the probability of your dish turning out correctly is very low, no matter how good the ingredients are. The same goes for your investment portfolio.
3. Lack of monitoring of the consolidated portfolio
You know that life is not static. Life is constantly changing. Whether it’s your job, your kids, the economy, world events, new laws, unplanned spending (and the list goes on and on), your world is constantly in flux. Your entire portfolio should also be dynamic. When market forces move, the properly managed portfolio needs to move with them. I’m not talking about day trading, but rebalancing when and where appropriate. In addition, your goals, future, feelings and family characteristics are also changing. Every day is one day closer to your goals, or not.
Having your assets spread out makes it almost impossible to properly monitor your portfolio based on your changing life. With the technology and tools available, along with the new “open architecture” available at full-service financial institutions, you’re better off hiring an advisor to help you monitor your portfolio. This trusted advisor will coordinate all your “eggs” and not put them in the same “basket”. He/she can manage your diversified portfolio to meet your goals, future, feelings and family characteristics and make sure your entire portfolio works in unison to make your dreams come true.
In conclusion, years ago, many firms limited themselves to the solutions that they could individually provide to the client. Many had their own funds or property investments, which may or may not have been in your best interest. Today’s full-service companies have an “open architecture” and can go out into the market and provide you with whatever solution is right for you. For your consideration, only hire an advisor who can go anywhere in the market with no limitations!