It’s easy for a few little words – maybe an idea in your head, or something you overhear at the office – to trigger some truly unfortunate investment decisions. For instance, “It’s a sure thing!” rarely is. This week’s post is a series of eight brief phrases that are better left unsaid and unheard.
“They say gold is going to $1500 next year.”
They also said the world was flat and the Red Sox would never win the World Series. There’s no reason to trust the speculation of an anonymous and probably imaginary “they.” If anyone was so certain that a price was going to go up next year, they would buy every available unit now. If “they” aren’t doing that, then you probably shouldn’t either. Why we don’t listen to predictions.
“I’ll wait for the market to go down; then I’ll get in.”
The market always goes up and down, but the big correction you’re waiting for may never come. And you may miss a big move upward. If you wait in cash, you’ll also lose ground to inflation. See this recent post for the discouraging math of waiting. See our recent post: How much have you been paying to own your cash?
“A buddy suggested that I buy…”
Any sentence that starts like this is a red flag. You may have brilliant buddies, but unless they have inside information, their opinions should be treated like random guesses. And if they do have inside information, you’re risking a trip to the pen if you trade on it. Why you don’t need investment tips: “Average” is anything but.
“It’s only open to sophisticated investors. So I want in.”
The only good reason to get in on a so-called exclusive private equity deal or other closed-to-the-public investment is to brag about it to your friends. The velvet rope around some offerings typically means more risk, not necessarily more return. In fact, when you’re categorized as a sophisticated investor it generally means that you can afford to take a loss, not that you’re entitled to an above average gain. Read about the perils sophisticated investors face: Five reasons why investing gets harder as you get wealthier.“I’ll start saving for retirement when the kids are out of college.”
Retirement, far off in some vague future, is easy to move down the priority list. But if you expect to enjoy a long happy retirement, saving should begin as soon as possible. That applies to college too. Your investment planning should reflect your expected cash flow needs through all phases of your life. You may hope to free your kids from the burden of student loans, but failing to fund your own retirement may mean a different kind of burden – supporting you in your old age. More about college savings: 529 Plan: College Savings Plan Calculator.
“I would never sell that stock – I worked there my whole career.”
Everyone understands the premise of diversification – spread your assets around so the failure of one company or industry doesn’t poison your whole portfolio. But that concept often gets thrown out the window when it comes to stock received from one’s employer, or as a gift from a treasured relative. That’s dangerous. More on this topic: Sentimental Stocks and What to do With Them.
“My primary goal is to not lose money.”
Sounds like a great idea, but a risk-free portfolio can’t even be expected to keep up with inflation. This strategy really only makes sense if you’ve accumulated enough assets to meet your needs for the rest of your life. If that’s not your situation, you’ll have to accept the risk of short-term losses to have a chance at long term gains. Read more: Don’t let gravity get you down
“No pain, no gain. I want risk!”
Too little risk is a problem, but so is too much or the wrong kind. A healthy portfolio has a risk level that’s commensurate with expected return. Anything beyond that is just risk for the sake of risk. More on risk: Getting ahead by not falling behind
These phrases can be alluring, but so were the Sirens on the rocks. We say steer clear, and let us help you build a diversified portfolio that’s consistent with your financial goals. When that’s in place there’s no need to pay any attention to “sure things,” “five star picks” or how your buddy’s buddy made a killing in soy beans.
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