Financial Advice Blog

5 Money Management Mistakes

by Community Manager  |  Retired, Army  |  San Antonio, TX  |  ‎04-07-2014 10:15 AM

Post-it Note downward stock mkt drawing - shutterstock_55572001.jpg 

It can be dizzying. And there’s lots of hard-to-ignore noise on the periphery.


No, I’m not talking about trying to work at home with the kids buzzing around. Instead, I’m talking about managing your investments. Peruse the paper, surf the Internet or turn on your TV and you’ll be bombarded with “can’t-miss opportunities” and gut-wrenching financial news that inevitably work their way into decisions you make on your investment portfolio.


Truth be told, I’m surrounded by money managers and money news, and sometimes I wonder, “What’s the right move?” And that’s with 20 years of experience in the business of personal finance! There’s no doubt about it: Managing your investments can be perilous – ripe with opportunities to make a bad move.


With the accuracy of hindsight on my side, here are five common mistakes I’ve seen people make while trying to tackle this task.


Timing instead of “time in.” Buy low, sell high. Sounds easy enough, right? But the reality is far different. At the beginning of 2013, a budget crisis, pending government shutdown and a long-running bull market could have easily led investors to jump out of stocks. A correction was surely imminent. Oops, U.S. stocks surged more than 30%. The lesson? Don’t try to time the market. Among the challenges you’ll face is the need to make two decisions – when to get out and when to get back in. Can you get them both right? If so, can you do it more than once? Probably not.  Don’t try to time the market, let your long-term money work for, yes, the long-term.


Picking off the top of the list. Avoiding this market mishap is a battle with human nature. It’s way too easy to look at last year’s winners and choose to jump on the bandwagon by shifting your money to whatever did best. Don’t do it! Remember, the rule is: Buy low, sell high. Maybe last year’s winner will go even higher. Or maybe it won’t. Typically, you’ll arrive at the party just in time for a big disappointment. Plus, chasing last year’s return isn’t really an investment strategy.


Hankering for a home run. In 2013, if you owned Rite Aid stock, you would have seen a healthy 272% return. If you had bet on the gold-mining stock Newmont Mining, you would have lost nearly half your investment. The point? For most people, broad-based mutual fund or exchange-traded fund investments make more sense than swinging for the fences … and the risk of striking out.


Believing more is better. Everything in moderation. It’s a saying that works well in many aspects of life, and investing is no exception. Some gold, commodities or real estate might be a nice addition to your portfolio. However, like cayenne pepper in your favorite recipe, more is not necessarily better! A diversified portfolio should contain a mix of different investments but not wild bets on the latest trend.


Following the headlines. Today’s 24-hour news cycle makes it difficult to focus on your long-term goals. But overhauling or overturning your plan for the next quarter-century based on the latest and loudest talking head’s thoughts (which won’t match next week’s rant) is not a solid portfolio management model. Follow the news, but don’t let it run you in circles.


Are you guilty of these missteps? Hopefully not! But if you feel any of these mistakes creeping into your life, bust out your long-term plan and your noise-canceling headphones. Like it or not, the investment world will always be a loud one. The key is to block out the extraneous noise and tune in to the goals you’re trying to achieve.





by Renosdiamond
‎04-07-2014 04:40 PM
Found this article to be the guide that I needed. I wish to get more involved in investments again and don't want to make mistakes. I need every bit of information I can find before taking that financial risk again.
by Guidingstar
‎05-15-2014 02:35 PM

2 Thumbs up for the first comment, I would like more info from USAA about investing also.

by TheDesertRat
‎05-15-2014 02:47 PM

Sound advise that more should follow. I remained moderate-somewhat agressive throughout the financial crisis with my 401(k) and it greatly paid off.

by Rixar13
‎05-15-2014 03:20 PM

I only know enough to be dangerous and need expert advice...

by nasa950
‎05-16-2014 06:54 AM

Sound advice but some times hard to follow

by troutfly1
‎05-18-2014 01:59 PM

Terrific article and full of good advice.   I was a CPA for part of my career.  How about writing something on how to achieve one's goals as a companion to how to avoid mistakes?  For me, I used the following in order of importance and management of risk, to get to the retirement I wanted:


Save enough in your retirement plans and make reasonable (conservative) assumptions on how much to save. 


Save personally (beyond emergency funds) if needed or desirable


Insure your future needs for as long as it takes for you to achieve your goals or until your needs are reduced to a point where the future is relatively secure.  Life and disability insurance are both part of this process as is long term care, where appropriate


Determine your risk profile and invest accordingly.  Diversify your portfolio to help minimize your risk.  Follow a written plan and rebalance when necessary.  Never let your personal feelings about the economy or the financial markets sway you from your plan. 


Spend as little as possible to achieve your investment goals and manage your money.  Do not pay more than is necessary or buy services you don't need or that are overpriced.  Consider using indexing as part of your plan

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J.J. Montanaro

Joseph "J.J." Montanaro is a CERTIFIED FINANCIAL PLANNER™ practitioner.

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