4 Traps That Can Wreck Your Retirement
How to avoid common mistakes that can undermine your plans
(This article appeared previously on MarketWatch.com.)
Retirement is nice in many ways, especially when the stock market has been strong. When we're making money with little effort, financial success can seem simple.
But important things usually aren't quite as simple as they seem. What we don't know and what we don't see in fact can hurt us.
Following his lead, I have identified four mental traps that can ruin an otherwise successful retirement. Fortunately, it's very possible to avoid each of these traps.
1. Betting On a Track Record
Perhaps the most common trap for investors is thinking that the recent past is a good guide to the future. This of course is tricky, because momentum really exists and often continues. But the financial tide can turn swiftly and unexpectedly; momentum can vanish in a heartbeat.
When shopping for a fund (the same is true when seeking a guru or an adviser), amateur investors almost always focus heavily on the fund's track record. They believe this will tell them something meaningful about how the fund's strategy will work in the future.
This seems totally logical. But has it worked?
Paul Merriman is founder of Merriman Wealth Management, a Seattle-based investment advisory firm, and president of The Merriman Financial Education Foundation. Paul writes a weekly column for MarketWatch's The RetireMentors and records a weekly podcast, Sound Investing. He has authored numerous books on investing including Financial Fitness Forever, Live It Up Without Outliving Your Money and the new How To Invest series available for free at PaulMerriman.com. Follow Paul on Twitter @SavvyInvestorPM.