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Financial Planning

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min read

September 15th, 2020

Learning what not to do from those who have already done it

“History repeats itself, so you might want to pay attention”.

Most would guess this line was said by a former world leader.  However, it was actually said by Quavo during an interview with MTV back in 2017 after Migos hit the world stage setting multiple records.  

In this instance, Quavo was foreshadowing big releases the group had planned for the upcoming year. 

Isn't Quavo a rapper?

Yes.

Known for buying outrageous jewelry?

Yes.

However, his advice is sound and is easily applied to financial planning for new investors. If we look at the common mistakes made by retirees, we can easily avoid them by preparing today.  

Three of the biggest mistakes retirees report making are: investing too conservatively, underestimating their expenses, and lacking a healthy level of skepticism.  

Investing too conservatively.

Long story short ...lower risk = lower returns. 

For those investors with 25+ years until retirement, maintaining an appropriate level of risk is key.  If your retirement portfolio is too conservative, you will most likely underperform the market on a continual basis.  This underperformance will create a huge drag on the long-term value of your portfolio and can easily cost tens, if not hundreds, of thousands of dollars.  

A prime example of this occurs within most 401K plans where the investor has picked a “target-date” retirement fund.  Broadly speaking, target date funds underperform and carry high investment fees. If you do not actively review and rebalance your 401K holdings, this investment can weigh heavily against your long-term success.

Underestimating your expenses.

Both before and during retirement, underestimating expenses can completely derail your financial plan.  A good Financial Planner will work with you to outline your short-, mid-, and long-term goals in an effort to uncover as many significant, upcoming expenses as possible. 

The sooner you plan for these expenses, the less they will cost.

Lacking a healthy level of skepticism.

In all facets of life, it is important to work with trained professionals who are working in your best interest.  Too often, investors buy into products they do not fully understand nor believe in only because it is what their “Advisor” told them to do.  It is of the utmost importance to make sure you know what you are invested in, why you are invested in it, how you are invested in it, and what the costs of that investment truly are (both short- and long-term).  

A skeptical investor will ask for alternatives and the pros and cons of each. 

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