Saving on a continuous basis is financially responsible from a spending standpoint, but when it comes to generating wealth, it’s only half the battle. This is especially the case among upside-oriented investors whose portfolios tend to be dominated by index funds and a handful of high-profile growth stocks, when in most cases they’d be better off spreading their assets across a broad investment universe.
That’s why when you’re investing for growth, it’s especially important to avoid these 3 common mistakes, and instead implement a well-articulated investment strategy.
Mistake #1: Not taking a proactive approach to mitigate investment losses
Most people understand the concept of being fully invested, meaning that all “investable assets” are currently invested, rather than remaining idle. But what they often overlook is that avoiding and mitigating losses in the first place is an equally important part of getting ahead.
Upside-oriented investors often appreciate the need to avoid “selling at the bottom” upon experiencing investment losses, but hearing yourself say “if I wait long enough, it will recover” isn’t fun either.
While it’s not possible to know exactly when to enter or exit the stock market, the key is playing both offense and defense, and knowing when to switch between the two. That’s why every investment strategy, even for those with a higher tolerance for risk, should consider measures to mitigate losses in the first place.
Mistake #2: Not maintaining enough “dry powder” for opportunities
One big problem with not maintaining enough liquidity (aka “dry powder”) to take advantage of opportunities within your investment accounts is that you may feel tempted to start investing money you might not have intended to invest in the first place. In the event that opportunities present themselves (such as a stock market downturn), you don’t want to begin raiding your emergency fund.
One sneaky way this situation can present itself is when you end up with a very high concentration of employer stock. What starts out as a positive – performing well in your role and amassing more equity – can eventually become problematic if you don’t think strategically about how to manage and diversify your overall portfolio. It’s especially tough if your employer is doing well because most employees will naturally resist paring back holdings in employer stock even when concentration reaches unhealthy levels.
Mistake #3: Watching your investments too closely, or not at all
It’s not uncommon to see people track their investments every day, or not at all (even for years). The reality is that either extreme has its downsides. The reason that it’s important to pay attention (but not too much attention) is that watching too closely can lead to impatience, emotionally driven investment habits, and stress, which can be a big distraction from both your day-to-day life as well as a sound investment strategy.
Few trades will successfully play out over a period of weeks (or months), and those that do should in most cases make up only a small part of your overall portfolio. So keeping an eye to the future and not reacting too impulsively is critical for maintaining balance.
Pulling it all together
While these 3 common mistakes are important ones to try to avoid, the nature of the market is that keeping a level head to best position yourself for upside isn’t always easy. That’s why it can be so helpful to have a professional investor in your corner.
If you have questions about your investment strategy or would like a second opinion on your investments, contact Paceline today.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.