The end of 2016 is finally in sight and many people are going to be excited to put this one in the rear-view mirror.  The onslaught of opinions and observations across the political, social, and economic spectrum have been exhausting to say the least.  As we close out the final weeks of this tumultuous year, it’s a good time to reflect on mistakes that were made in your investment portfolio.  It’s my hope that a little bit of analysis and introspection can lead to better behavioral choices moving forward. 

First, it’s important to clarify true mistakes versus missed opportunities or ill-timed trades.  I’m not talking about the kind of regrets that sound like this:

  • I should have owned more small cap exposure.
  • I should have bought those steel and coal stocks near the lows.
  • I should have sold that tiny slice of biotech I own.
  • I never should have bought VXX.

That’s just hindsight giving you a little dose of reality that we don’t know how the year is going to play out.  You can’t realistically own the top performers in any given year regardless of prognosticators that will try to tell you differently.

Furthermore, those types of trades would have likely been small to begin with and maybe only added a point or two to your total return.  They might be worthy of an adjustment to your playbook, but should not add any significant anxiety overall.

The real mistakes are choices you continue to make in the face of incontrovertible evidence they are wrong.  I’m talking about these types of decisions:

  • I continued to let my advisor hold stock and bond mutual funds that charge high fees and underperform.
  • I am more interested in an investment “story” than a truly comprehensive and sensible strategy.
  • I fell for all those experts in the media who told me the market would do X if Y happened.
  • I let my advisor or insurance guy sell me an annuity because of the “guaranteed income stream”.
  • I stayed 100% cash because I’m afraid of everything market-related. I see bubbles everywhere I look.
  • I let fear in January or February override discipline. Now I’m paying the emotional and financial price for that.
  • I thought that because my advisor and I share the same gender, religion, or political views that they would have my best interests at heart.
  • I have no idea what I’m paying in fees or what my advisor is doing with my money.

If you find that you have fallen into one or more of these bullet points, don’t feel ashamed.  Often, it’s because you trusted someone to place your interests ahead of their own and they failed to live up to that expectation.  The other common mistake is that investors let emotions dictate their investment decisions rather than relying on evidence-based structure.

This stuff is real life.  I spoke with a good friend’s mom the other day who has over $1 million invested with a local advisor at a “well-respected firm”.  She’s getting charged over 1% annually for management fees and they don’t make any portfolio changes.  They have her invested in 13 mutual funds that are all charging over 1% expense ratios as well.  She got hit with the $3,000 upfront financial planning fee.  Oh, and now they are trying to sell her an annuity for half of her assets because it’s “safer” and charge another $1,500 fee to update the financial plan this year.

The true measure of your resilience as an investor should be to rectify these issues immediately.  Forget about the past and vow to start fresh.  Your New Year’s resolution should be to shake off the status quo and make some real progress for your financial future.

That starts with a heightened level of education and knowledge about your current situation.  You must take a more proactive approach to learn how your money is being managed and what the alternatives are.  You should be aware of what you are paying in fees, what your performance is, and what types of investments may be better suited to your goals.

There are honest advisors out there who are using low-cost investment vehicles and genuinely earning their management fees.  Make sure that you fully understand the value of the services you are paying for and do your best to filter out the noise we are inundated with every single day.

The Bottom Line

No one knows what the future will bring.  I have no idea if 2017 will be a boom or bust.  But the one thing I am focused on is proper alignment of goals, costs, and risks to ensure we are walking the right path.  My hope is that you will find a similar balance in your investment endeavors as well.

Here’s to a healthy and wealthy New Year!