The Top 5 Investor Mistakes and How to Avoid Them

The Mistake: One of the most common mistakes investors make is not having a well-defined investment strategy. Investing without a plan is like setting out on a journey without a map; you might eventually reach your destination, but the road will be full of unnecessary detours, and you might not get where you want to go.

How to Avoid It: At Allworth Financial, you’re not alone in crafting an investment strategy. You have access to a dedicated financial planner who works with you to define your investment goals and create a tailored strategy to meet them. Whether you're saving for retirement, a child's education, or another important life event, your financial planner will help you choose an investment strategy that aligns with your time horizon and risk tolerance.

Regular reviews and adjustments by your Allworth Financial team help keep your strategy on track, even as your life circumstances change. By working closely with your financial planner, you gain clarity, direction, and the confidence that your investments are being managed with your best interests in mind.

2. Emotional Decision-Making

The Mistake: The stock market is inherently volatile, and it's easy to let emotions drive investment decisions. Fear and greed are two powerful emotions that can lead investors astray. During market downturns, fear can push investors to sell off assets prematurely, locking in losses. Conversely, during market booms, greed can lead to over-investing in risky assets, potentially resulting in significant losses when the market corrects.

How to Avoid It: The key to avoiding emotional decision-making is discipline. Stick to your investment plan, and avoid making impulsive decisions based on short-term market movements.

Another strategy is to maintain a long-term perspective. Remember that markets fluctuate, and short-term volatility is a normal part of investing. Historically, the stock market has trended upward over the long term, so resist the urge to react to every dip or surge.

With Allworth Financial, you benefit from having a professional money manager who helps you avoid the pitfalls of emotional decision-making. Your financial planner and their team provide the discipline and perspective needed to stick to your investment plan, regardless of short-term market movements.

3. Failure to Diversify

The Mistake: Putting all your eggs in one basket is a recipe for disaster in investing. Over-concentration in a single asset, industry, or geographic region can expose you to unnecessary risk. If that investment underperforms or collapses, your entire portfolio could be severely impacted.

How to Avoid It: Diversification is the best defense against this mistake. By spreading your investments across different asset classes, sectors, and regions, you reduce the impact of a poor-performing investment on your overall portfolio.

Diversification can be achieved in several ways:

• Asset Class Diversification: Include a mix of stocks, bonds, real estate, and other asset classes in your portfolio. Each asset class responds differently to market conditions, providing balance.
• Sector Diversification: Invest in a variety of industries, such as technology, healthcare, finance, and consumer goods, to protect against sector-specific downturns.
• Geographic Diversification: Consider investing in international markets to reduce exposure to any one country's economic performance.

Diversification is a fundamental principle at Allworth Financial. Your financial planner and professional money manager work together to ensure that your portfolio is diversified across a mix of asset classes, sectors, and regions. This strategic diversification reduces the impact of any one investment on your overall portfolio and helps stabilize returns over time.

The Mistake: Many investors try to outsmart the market by timing their buy and sell decisions based on predictions about market movements. While the idea of buying low and selling high is appealing, the reality is that consistently predicting market movements is nearly impossible. Even professional investors often struggle with market timing, and the cost of getting it wrong can be substantial.

How to Avoid It: Instead of trying to time the market, focus on time in the market. A long-term investment approach, where you stay invested regardless of short-term market fluctuations, has historically been more successful than attempting to time market entry and exit points.

Another key is to avoid panic selling during market downturns. Remember, the stock market has recovered from every downturn in history. Staying invested through the tough times can lead to significant gains when the market rebounds.

Instead of trying to time the market on your own, rely on the expertise of your professional money manager at Allworth Financial. Your money manager employs a disciplined, long-term investment approach that focuses on time in the market rather than trying to time market entry and exit points.

Your financial planner will also help you understand the benefits of staying invested through market cycles and using strategies like dollar-cost averaging to reduce the impact of volatility. By working with your Allworth Financial team, you avoid the temptation to make short-term market bets and instead focus on achieving your long-term financial goals.

The Mistake: As time goes on, the performance of different investments in your portfolio will vary, potentially causing your asset allocation to drift away from your original target. This can lead to an unintended increase in risk or a deviation from your investment strategy.

How to Avoid It: Regular portfolio rebalancing is essential to maintain your desired asset allocation and risk level. Rebalancing involves adjusting your portfolio by buying or selling assets to bring your allocation back in line with your original targets.

For example, if your target allocation is 60% stocks and 40% bonds, but a strong stock market has shifted your allocation to 70% stocks and 30% bonds, rebalancing would involve selling some stocks and buying bonds to restore the balance.

At Allworth Financial, rebalancing your portfolio is a proactive and essential part of the service provided by your professional money manager and financial planner. Regular portfolio rebalancing is conducted to ensure that your asset allocation remains in line with your original investment strategy and risk tolerance.

Conclusion

Investing is a journey that requires patience, discipline, and a well-thought-out plan. By avoiding these common mistakes—failing to have a clear strategy, making emotional decisions, neglecting diversification, trying to time the market, and forgetting to rebalance your portfolio—you can improve your chances of long-term success.

With Allworth Financial, you have a dedicated financial planner and a team of professionals by your side to help you navigate these challenges. Regularly reviewing your investment strategy, staying informed, and maintaining a long-term perspective will help you stay on track toward your financial goals. By leveraging the expertise of your Allworth Financial team, you can build a more resilient portfolio and achieve the financial future you desire.

Past performance may not be indicative of future results. Asset allocation does not ensure profits or guarantee against losses; it is a method used to manage risk. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment, investment allocation, or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Allworth Financial), will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Advisory services offered through Allworth Financial, an S.E.C. registered investment advisor. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Allworth Financial is an Investment Advisor registered with the Securities and Exchange Commission. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC.