Carin Pickworth* says that if you’re looking to secure your retirement in the best way possible and avoid regret, there are three financial decisions to avoid.
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Smart investors still make mistakes.
Just ask Warren Buffett, who declared that while most successful people don’t mention their financial mistakes, “we do make them”.
No matter what age you are and how much your bank account amounts to, chances are you’ve done some dumb things with your dollars in the past — you’re only human.
A new book by Ritholtz Wealth Management Director of Research, Michael Batnick, Big Mistakes: The Best Investors and Their Worst Investments, makes mention of the often-considered infallible Buffet — pointing out some of his worst financial decisions.
While you can’t erase the past, those looking to secure their retirement in the cleverest way possible can learn from the best to ensure they avoid these three financial decisions they may later come to regret.
Not investing in shares sooner
Perhaps your partner is wary of the stock market and it’s putting you off?
The fact remains, you’re never going to win from it if you’re not in it.
If you have $2,000, $5,000 or $10,000 lying around and you haven’t even thought about how you could be investing it into shares — you’re behind the eight ball and it’s time to get up to speed.
Going back to Buffett — he recently told a US reporter he “hates cash”, which he considers nothing more than “a holding position until you find something else”.
The earlier you put money into long-term investment strategies, the better off you’ll be in retirement, and cash just isn’t going to give you those returns — ever.
It makes sense you might need to pay off some debts first or build an emergency fund before you get started, but once you’ve ticked those boxes it’s time to get serious about stocks and start to see your money surging towards your investment goals.
Most investors wish they’d started sooner — don’t make the same mistake.
Not diversifying your portfolio
Investors who are starting out with share market investments might want to try and nab some blue-chip stocks to lay down the foundations of their portfolio.
This is normal, even suggested, but be careful not to put all of your eggs in one basket.
So what is a diversified portfolio and how can you make sure you have one?
Diversification is all about owning stocks in different sectors to narrow your risk and broaden your gains potential.
Not taking on some speculative picks earlier
A speculative stock is one with a high degree of risk.
Sounds bad, right?
Not if you weigh up the substantial returns that may compensate — oftentimes high-risk can also mean high-reward — and who doesn’t want to be part of that?
For most investors, speculative stocks are the realm of the young — but you don’t want to get to retirement and realise you never took a punt.
The general rule is that 20 per cent of your portfolio should be in speculative picks while you’re young, but this figure also needs to take into account the size of your portfolio and your risk tolerance.
Do your due diligence and time your entry well, looking for downtrends where you can pick up a bargain.
* Carin Pickworth is a Brisbane finance and business reporter.
This article first appeared at www.fool.com.au.
