Avoid These 4 Fear-Related Risks to Retirement Investing

Money SmartsFebruary 1, 2018

Guest blog by The Tranel Financial Group, their business is people and making everyday amazing.

Franklin Delano Roosevelt relayed his deep understanding of how fear itself is a risk and can lead to irrational action when, in a time of extreme uncertainty and war, he advised the nation that we “have nothing to fear but fear itself.” That same wisdom applies to retirement investing. Here are 4 fear-related risks to avoid when pursuing your financial retirement goals:

Fear of Large Cap Stocks

Many people favor conservative investing and will trade off small growth for less risk. Generally, the closer you are to retirement, the more conservative your investment portfolio should be. But too often, conservative investing results in either zero or negative return from a “too cautious” approach. A current example of this might be a portfolio consisting of a few treasuries, cash and money held in real estate. If this reflects your situation, you should probably rethink your approach because the only thing you are gaining is risk.
Whether your expectation is small growth or large growth, you are expecting some form of growth. Unfortunately, fear often paralyzes decision making. The stock market has had several notable setbacks during its history, but it has always recovered to reach new highs. For the past few years, the best returns over a five-year term still comes from a diversified mix of large cap stocks, yet many conservative investors fear that even the smallest investment in it is too much risk.

We advise our clients:

  • Being overcautious can be a risk
  • In a mix of investments, each provides a risk hedge against the others
  • A diversified blend of some large caps, in addition to the other conservative growth avenues, should provide growth stability if your conservative portfolio is flat lining
  • If you plan to retire within the next 5 to 10 years, talk to you advisor about what blend of large caps might be right for you

Fear of Missing a Detail

Do you monitor your portfolio every single day for fear that something will go wrong? If so, beware of falling into a “knee jerk” pattern of overreaction and the worry trap of fretting over every dip that comes along. Among the many changes the Internet brought to society was the advent of day trading by both experts and novices. This introduced more daily volatility into the markets, especially among small caps.

Daily volatility is now the rule due to day trading. Day trading is essentially gambling against huge odds. Most day traders lose money quickly and never recover it because they are too close to their money and too quick to cut their paper losses. While they may feel they are managing investments, many are simply just succumbing to the addictive, emotional adrenaline rush of gambling.

Fear of Missing Out

Also known as the “band wagon” risk, the fear of missing out on the latest upward trend usually results in minimal gain and substantial risk since chances are likely that by the time you’ve become aware of the opportunity, your investment in it represents nothing more than the take others will receive who got in early. These are called bubbles and while they are regarded by many as a natural economic occurrence, they tend to have the same kind of impacts on investors as pyramid schemes. The fact is, bubbles burst, and leave many investors in the lurch. Avoid the herd mentality and don’t pump money into already over-inflated stocks.

Fear of Now Keeping Up with the Joneses

Has a friend, relative or neighbor bragged to you about how their market insight paid off big time? Many investors fear not doing as well as their peers, but those who compare their performance to those of others based on a conversation had over the fence, risk sidetracking their investment stability.
Studies conducted by Peter DeMarzo and Ilan Kremer of Stanford University, along with Ron Kaniel of Duke University, have recognized that individual investors place great emphasis on wealth and status relative the people in their communities. Fear of appearing to have less than your neighbor can motivate some to chase bogus or expired opportunities, thereby sidetracking their own plans. Keep a receptive attitude when conversing with friends about investments, but think twice before you stray from your course.

Retirement Investing with Tranel

The Tranel Financial Group can help you start retirement investing in order to reach your life goals. Our team of advisors can help you create a retirement investing strategy. Call us today at (847) 680-9050 or schedule a meeting with an advisor.

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