Watch Your Step!
Avoid These 10 Common Investor Pitfalls
Following a difficult 2022, the vast majority of fixed income and equity asset classes find themselves in positive territory on a year-to-date basis. The current global market recovery offers investors a crucial opportunity to reflect upon their investment strategies with an eye toward making informed decisions for the future. While the global economic and market dynamics of the recent past led many investors to say, “this time is different,” here are ten common pitfalls, which, we believe if avoided, served you and your balance sheet well.
Undefined investment objectives – If the last few years have taught us anything, it’s that we never know what challenges might be around the corner. Rather than making frantic, sudden changes to avoid the proverbial bumps in the road, long-term investment success involves constructing a well-diversified portfolio aimed at providing the appropriate levels of risk and return needed to meet your unique objectives. In our opinion, even after thoughtfully building your portfolio, a certain level of resilience will be required to navigate the day-to-day, month-to-month and year-to-year volatility of the market. Be sure you have a pre-defined process in place to return to during volatile market periods to ensure you are still on track.
Lack of diversification – Over the years, numerous academic studies have shown the mix of asset classes in your portfolio have a far greater impact on investment outcomes than security selection or market timing. With equity and fixed income market leadership frequently shifting, we believe an appropriate level of portfolio diversification offers the best path toward arriving at your stated risk and return goals. Many times, investors attempt to magnify returns by taking on large exposure in one particular security or sector; however, when markets push back against such concentrated positions, the results can be disastrous (…hello cryptocurrency).