What You Can Learn from Millionaires’ Investment Mistakes

One might think that if anyone would be savvy about financial investments, it would be millionaires. After all, they can afford to consult some of the best financial advisors in the world, right? Not necessarily true! The deVere group recently surveyed 880 investors in the world with more than $1.5 million of investable assets and found that millionaires reported making some extremely common investment mistakes:

1. Failure to Diversify

The old adage of not putting all your eggs in one basket is extremely true when it comes to investing. If you put all  your money in one stock and that one stock plummets, you’ve lost everything. But if you diversify well enough, you will have other investments to fall back on and won’t be completely ruined by one investment taking a hit.

2. Investing Without a Plan

If you don’t know much about investing other than “Buy Low, Sell High,” definitely seek the guidance of an experienced and reputable investment counselor. They can develop an investment plan tailored to your specific needs and financial goals.

3. Making Emotional Decisions

Having the help of an investment counselor will help with this mistake. It’s commonly said that investing in the stock market is generally motivated 90% by emotion and 10% by reason. After all, when faced with potentially losing a great deal of money, people are likely going to make snap decisions to avoid losing it all. But an investment counselor can help you avoid making emotionally-charged decisions that could cost you money in the long run.

4. Not Regularly Reviewing Their Portfolio

If you have investments, you need to keep an eye on them to make sure everything is performing satisfactorily. The last thing you want to do is take a look at your portfolio and realize you’re down a bunch of money because you weren’t paying attention.

5. Focusing Too Much on an Investment’s Past Returns

Plain and simple, you have to remember that just because an investment performed a certain way in the past doesn’t necessarily guarantee it will perform the same way in the future.

More Single Women Investing in Real Estate

Home ownership has long been tied to being part of the “American Dream,” but after the housing market collapse of 2008, many Americans are no longer seeing real estate as a good investment opportunity. According to the U.S. Census Bureau, only 65% of Americans own their homes, the lowest it has been since 1995, and only 36.5% of people under 35 own their homes, the lowest it has been in over 30 years. A survey conducted by the Washington Post and the Miller Center has found that while most people still believe in the “American Dream,” only 61% of them view owning a home an essential part of it.

But there is one growing demographic that still sees real estate as a worthy investment — single women. Single women currently represent 16% of American homebuyers whereas single men only represent 9%. Many women are now putting marriage off until later in life and see no reason why they should wait to make a move that makes good financial sense for them now. When the New York Daily News interviewed several single women who own their apartments, a common theme was that their mortgage payments were less than what they were paying in rent and it made no sense to be paying upwards of $3,000 per month on something they don’t actually own.

One reason many single women are reluctant to buy property is that they don’t want to be stuck owning a property they might outgrow if they get married and have children. But other single women see the potential of turning their homes into rental properties if they eventually end up needing more space.

The rise in single female homeowners may be partially attributed to a slowly-shrinking wage gap between men and women. On a national level, American women still only earn an average of 79.5 cents for every dollar their male counterparts earn, but the gap is shrinking among women aged 25-44, who are now earning an average of 81 cents for every dollar. Therefore, younger women are starting to have more money than before to invest.

Five Things to Ask Your Financial Advisor

Image courtesy Sigma Investment Counselors

The decision to hire a financial advisor is not one to be taken lightly. After all, this person will be handling your financial future; you want to be sure you hire someone you can trust. There are many things you want to keep in mind while choosing your advisor, but here are a few of the most important questions you should ask any potential advisor:

How Are You Compensated?

Know exactly how a financial advisor plans to charge you. A reputable financial advisor will be up front about their fee structure. Some might have an hourly fee, others might charge by the project or based on the amount of assets they manage.

What Are Your Credentials and How Long Have You Been Working?

When looking for a financial advisor, you’ll see lots of names followed by acronyms such as CPA, CFP, and RIA. Ask them to explain exactly what those acronyms mean and what kind of work went into earning those credentials.

What Type of Clients Do You Typically Work With?

Many firms tend to work with a certain type of clientele and you want to be sure the advisor you work with is someone who will understand your unique needs. For example, if you’re a divorced woman looking to build a modest stock portfolio, an advisor who usually works with businesses and corporations isn’t going to be the best fit for you.

Ask for a Sample Financial Plan

There’s no one standard format for financial plans so one advisor might give you a plan that is very straightforward and another might give you a plan that is far more complex and in depth. You don’t want to be getting financial reports you simply do not understand.

Do You Accept Fiduciary Responsibility?

If an advisor accepts fiduciary responsibility, this means they have a legal obligation to solely work in your best interest, not theirs.

For more questions to ask your advisor, the Securities and Exchange Commission (SEC) has a great list of suggestions.

How Millennials Are Investing

Much like the generation that grew up during the Great Depression, studies have found millennials are very hesitant about investing their money. Many millennials graduated from college just in time for the 2008 recession and struggled to find work in an uncertain job market, facing long periods of unemployment. Those who could find jobs were often forced into taking low-paying jobs just to get by, and between student loan debt and other necessary expenses they simply didn’t have money to invest. Others who weren’t fighting for jobs likely witnessed the impact the recession had on their parents’ investments and have decided not to take the same risk. Instead, many millennials are preferring to keep their money in something they feel is more secure — cash.

Currently, adults aged 21-29 are typically putting about 28% of their money in stocks and keeping about 52% in cash. Non-millennials typically have about 48% of their portfolio invested in stocks and only about 23% in cash.  Although keeping their money out of the stock market may seem like the safer choice, but the main drawback to saving that way is that money can’t grow if it isn’t invested, which is going to make saving for retirement even more difficult for millennials who already had the disadvantage of entering the workforce at a very turbulent time. The millennials who haven’t been scared out of putting their money in the stock market tend to be more conservative investors and view their investments as being sort term.

Millennials who do consider investing also prefer to get advice from their parents or a reputable investment counselor. If they’re going to take the risk of investing, they want the guidance of someone they can trust to make sure their money is being invested as wisely as possible.

Four Things to Consider Before Investing

1. Determine Your Financial Goals

What is it that you hope to achieve by investing? Are you looking to buy a home? Do you want to save money for retirement? Saving money to send your children to college? Once you know your what you want, an investment counselor can figure out the best plan to help make your financial dreams a reality.

2. Make Sure You’re in a Good Position to Invest

Before investing money, be sure you have no other pressing needs to be taken care of first. Pay off any outstanding credit card debt so you aren’t throwing money away on interest rates. Make sure you have a healthy emergency fund saved up. An emergency fund should have enough money to cover 3-6 months worth of living expenses in the event of sudden unemployment or other crisis.

3. Consider Several Investment Opportunities to Diversify Your Portfolio

When it comes to investing, there is safety in numbers. Investing all your money in one or two ways is a bad idea because if one of them takes a hit, you have nothing else to fall back on. But if your portfolio is sufficiently diverse, your other investments should be able to soften the blow of one investment not performing very well.

4. How Much of a Risk are You Willing to Take?

All investments involve taking a risk of some sort. It’s up to you to decide if you want low risk investments or high risk opportunities.