Ever talk to someone bemoaning the state of their 401(k) or IRA? A few casual questions reveal that they had no reason to buy the mutual funds in their portfolio outside of a hopeful glance at the historical returns.
If and when the funds falter, the losers are jettisoned willy-nilly, and the investing plan, if you can call it that, is rejiggered to reflect another iteration of the same nonplan.
Or there are the people who have dropped out of the market altogether and say they will only buy CDs from now on.
There are many ways to go wrong.
An article on the website SeekingAlpha.com today features an interview with Larry Swedroe, principal and the director of research for the Buckingham Family of Financial Services and author of the recent book, "Investment Mistakes Even Smart Investors Make and How to Avoid Them."
The article is called "Larry Swedroe and the Zen of passive investing."
Author Jonathan Liss asks about common mistakes made by investors. Is diversification the right strategy only if the investment horizon is long? And he references the book, in which Swedroe recommends an allocation of zero percent to equities if your time horizon is less than three years.
Part of his answer reflects another mistake -- that of going too conservative on the approach to retirement.
And speaking of retirement, people make the mistake of thinking "I'm 62; my end date is in 3 years." Retirees need money to last them 25 or 30 years with life expectancies being what they are these days, so certainly someone approaching retirement would want a fairly significant allocation to equities.
The interview spans several topics but winds up on the benefits of passive investing. It really resonated with me personally as an ardent fan of passive investing.
When you invest passively, you have time to do what's really important in life. It allows you to spend your time on the things you really love and with the people you really love, instead of spending your time trying to beat some system that is unbeatable for most people anyway.
What are your investing mistakes?
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