The Biggest Challenge To Investing Success

Our Blog Post today is brought to you by fellow fee-only financial advisor, Phillip Christenson of Phillip James Financial. His article is about The Biggest Challenge to Investing Success. Phillip is a CFA, Chartered Financial Analyst, independent financial advisor and portfolio manager. He helps people with comprehensive financial planning, tax planning, and retirement projections. If you’re ever in Minnesota reach out to Phillip for further financial help. Enjoy the article!

The Biggest Challenge To Investing Success Is You

2016.12.01.Photo - The Biggest Challenge To Investing Success Is YouWith modern technology, more and more people are taking it upon themselves to manage their own investments and other financial planning decisions. In the past if you wanted to invest your money you would go through a broker. You would either tell them what to buy for you or ask for a recommendation, in which case they would sell you some stocks or mutual funds, earning a commission along the way. Today many people have cut out the middle man and now use various online tools and mobile apps on their smart phones to invest their money themselves. While this gives the individual investor more power and control than ever before, this is not always a good thing. When you have the ability to buy and sell an investment with the click of a button on a mobile device, the potential for overtrading and making mistakes is far greater that it ever was. The fees alone will add up quickly and eat into your return.

Making Knee Jerk Reactions Is A Common Mistake

To give you an idea of how being overactive with your trading is a bad thing take a moment to think about how quickly you can initiate a trade using modern technology. Not only do smart phones enable you to buy and sell stock from anywhere, they also keep you connected to the world and feed you information all the time. So, let’s say you are having lunch with a group of friends and while you have a moment you check your phone. You quickly become dismayed when you find out that one of the companies you are invested in has taken a decent sized hit with its stock dropping several points.

You quickly react and sell off your stock at a significant loss figuring that it is better to lose some money than to risk losing even more. Not long after you sell the stock it rebounds. If you had only waited before acting, you could have avoided losing a good portion of your investment. This is just one example of how modern technology can prove to be a detriment to you when it comes to your investments. If you hadn’t checked your phone you never would have noticed the temporary dip in the stock. Even if you had somehow found out about the stock dropping, without the ability to execute an online trade you would have had to contact your broker to initiate a sale. Your broker then may have advised you to wait before selling in case the stock rebounded. Or at the very least maybe it was enough time for you to digest the news and make a more rational decision about the future prospect of your stock. In other words, there were a series of buffers that would have prevented you from making the snap judgement that you made, which ultimately ended up costing you money.

How Can You Avoid Making Errors With Your Financial Planning?

One way that individual investors can help to ensure their long term financial health is to commit to an investment strategy that focuses on the long-term rather than short-term trading. Stocks go up and down on a regular basis, if you remain fixated on these daily changes you are going to stress yourself out trying to manage your money on top of your job and other responsibilities. Instead you need to focus on the big picture and realize that as long as you think the stocks you own will be higher over a long period of time, then any short-term fluctuations are inconsequential.

As an investor, you need to keep in mind that you are trying to plan for the future by investing your money today. That means your goals should be to watch your money grow over long periods of time. If you speak with any reputable financial planner, they will tell you the same thing. Unfortunately, since most people don’t consult a financial planner, they continue to make mistakes that limit the growth of their investments.

Try to Limit The Number Of Transactions That You Make

If you want to increase your chances for growing your wealth you need to limit the number of transactions make. This goes back to the concept of having a long-term time horizon. A lot of investors who take charge of their own money don’t stop to think about how quickly the fees they are paying per transaction can add up. But not only will costs eat into your return, any gains you have will be taxed at short-term capital gains, usually much higher than long-term capital gains.

Taking Charge Of Your Own Financial Planning Can Work If You Make Smart Choices

It’s human nature to panic when faced with a crisis. Be it a personal crisis, an accident, or a financial one where you see that a stock you are invested in has started to drop suddenly. No matter what type of situation you find yourself in panicking will generally make things worse. That’s the lesson that people who manage their own money and engage in online trading need to understand. The market fluctuates and stocks go up and down all the time. Just because one of your stocks go down doesn’t mean that it will continue to do so. By empowering yourself to manage your own money you are accepting responsibility for your long term financial health. This can be a good thing if you make smart decisions. Always keep the big picture in mind when investing, don’t make snap decisions, and try to limit the number of trades and other transactions you make. If you can do this then you have a better chance at managing your own investments.

If you have questions or want help with your investments, then maybe it’s time to talk to an fee-only financial advisor today. They’ll be able to create a financial plan that is customized to your situation and goals and make sure you’re invested the right way.