If you’re reading this blog, chances are good you’ve had some experience with financial investing. In fact, you may even be a financial advisor who tells people what to do with their money. You may already be aware of the most common mistakes that investors make, but whether you are or not, it is important to review them so they don’t take you by surprise. As we said in our last blog, mistakes are some of the most powerful learning opportunities we have. However, it doesn’t mean you have to be the one who makes the mistake; you can learn from the mistakes of others!
Mistake 1: Failing to make a good plan
If you’re investing, we know you probably obsess over financial planning. However, a good financial plan has several components, and if you neglect to fully develop your plan, you and your clients will run into trouble. The following items below each play an important role in a solid plan, and they should all be written down.
Whether you’re reading this blog as a client or an advisor, you should be clear on the following pieces of information:
- Goals and objectives
- Depending on the situation, the question of goals can be a difficult one. However, people are usually pretty clear on what they want to get out of their investments. Many times, they’re saving for retirement in hopes of retiring at a reasonable age. Other times, they need to raise money for a child’s college education. The key is having a concrete goal. “Beating the market” does not count as a goal; it’s just a vehicle, and a chaotic ride at that. Do not fall into the trap of simply wanting to make money off the market for the sake of making money. Find your actual why. Sometimes you beat the market, sometimes you don’t; it shouldn’t determine the absolute success or failure of your investment. Your why will help you stay the course no matter what happens.
- Some people love to take risks and would be bored if chance wasn’t part of the game. However, a majority of investors would love an investment system without any risk. Why do you think so much time and energy goes into algorithms, predictions, and other stabilizing systems? Why do you think the MTP’s system has neglected to include time? However, risks are some of the most powerful tools an investor have. What do we mean?
- Each type of investment has its own risks. Identifying them at the get-go allows you to prepare solutions and keep your ship on course. Preparing for unique risks forces your investment plan to become stronger and tougher, which can only help you in the long run.
- Measuring the success of your investment portfolio is key to staying on track. You should know what success looks like for your unique investment before you get started. That way, you won’t have problems understanding how your investments are performing. This knowledge is huge for peace of mind, especially if you are an advisor.
- As an advisor, make sure your clients understand exactly what the benchmarks are for their investments. That way, you won’t have trouble showing them how AlphaDroid’s elite asset allocation software has put them on the fast track to achieving basic benchmarks and beyond. Having clear points of reference for success will only make your investing strategies stronger.
- Asset Allocation
- In a way, this is where the rubber meets the road: you actually have to distribute assets to international stocks, U.S. equities, U.S. bonds, and beyond. The key to effective asset allocation is planning for success and for risks. The allocation has to be flexible and bolstered by backup plans. That is where AlphaDroid’s asset allocation software is so powerful. Not only does it tailor allocation for success, it guards against risk so you can take on the future with confidence.
- Every good investment plan involves some sort of diversification. Your investment should engage several different asset classes and have enough mobility to sidestep obstacles. Again, AlphaDroid is made to keep your investments hitting asset classes at their highest and protecting you from whenever they go down.
Mistake 2: Paying too much attention to financial media
Anyone who has been in the investment sector long enough has realized that financial shows really don’t have much to offer. Even though some newsletters can offer some value, it usually isn’t worth taking the time to identify which ones are legitimate. If you think about it, anyone with great stock tips isn’t going to be sharing them via an expensive newsletter or show. Instead, they’ll be keeping that secret to themselves and making as much money off of it as possible.
To be successful at investing, you have to balance a pioneer spirit with value for proven methods. Don’t let unsureness drive you to buy false advice. Instead, put your time and energy into tracking and improving your own investment plan.
Mistake 3: Inadequate time horizon
People tend to focus too closely on the short term when they’re investing. While the short-term has some importance, you must tailor your horizon to match your goals. For instance, when saving for retirement, you can’t just invest up to your retirement date. Instead, you need to plan for 15 to 20 more years…and even longer if you want to leave money for future generations. On the other hand, if you’re saving for a child’s college education, your time horizon will be a lot shorter. AlphaDroid’s software is unmatched at managing the short term so you can spend more time on macro strategies.
Mistake 4: Going after performance
It’s true: well-performing advisors, funds, strategies, and asset classes are very attractive. However, they aren’t the ultimate solution. In fact, they can be traps. People get afraid of missing out on great returns, which drives them toward these well-performing solutions. They fail to realize that everything rises and falls, and even though something is doing well now, that doesn’t mean it will be a few months from now – or even a few years from now. You need to have the strength to stay your course and, instead of hopping from one flash-in-the-pan to another, rebalance your investments.
Mistake 5: Failure to rebalance
The process of returning a portfolio to its investment plan’s target asset allocation is one of the most difficult things for investors to do. In the moment, it can feel painfully contrarian to sell asset classes currently doing well to buy classes that are doing badly. However, it is key for keeping your portfolio on track and preventing it from drifting. It is especially important for ensuring that your portfolio doesn’t fall into the trap of performance chasing, which ultimately leads to trouble.
At AlphaDroid Strategies, we are proud to be the allies of financial advisors everywhere. Our asset allocation software is specifically designed to do the heavy lifting that will allow you to focus on building strong relationships with your clients. AlphaDroid doesn’t just keep your investments strong by pursuing strong opportunities, it works equally as hard to protect your investments from experiencing lows. It has been created by a highly experienced team and is truly the pinnacle of asset allocation software. Learn more about our revolutionary investment system today!