Top 5 Mistakes Millionaires Made With Their Investments

Top 5 Mistakes Millionaires Made With Their Investments

In a study of 880 global high-net-worth clients, deVere Group asked respondents to identify the biggest investing mistakes they made before they decided to get help from a professional:

  1. Focusing too much on historical returns
  2. Not reviewing the portfolio regularly
  3. Making emotional decisions
  4. Investing without a plan
  5. Not diversifying adequately

Some comments about these various “mistakes”:

  1. Bear in mind that *all* research relies, to some extent, on historical returns.  Nevertheless, it’s important to put them in context, to make sure the the plan allows for variation and adjustments along the way.
  2. There may be a conflict between (2) and (3) — folks who review the portfolio *too* much may be more inclined to make emotional decisions (such as to sell at the bottom or buy at the top).
  3. See #2 
  4. No question – every dollar invested has to be have a reason for where it is and what it’s doing.  Sometimes the goal may well be “nothing in particular” but the important distinction, then, is that that non-goal must be funded separately from goals for which there are specific time horizons, expectations and needs such as retirement or college.
  5. Diversification has been called the only “free lunch” in investing.  In Silicon Valley, especially, when folks get equity compensation from their employers in the form of stock options, restricted stock units, etc – it’s very easy for them to not only fail at overall portfolio diversification, but to have highly leveraged investments in a single company – which company may well be responsible for their paycheck as well as a substantial portion of their wealth.  If this sounds like you, make sure you understand the risks!
 

[summary of “mistakes” derived from an article on ThinkAdvisor.com by Danielle Andrus.]

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