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How Trading Your Own Retirement Can Fleece Your Financial Future - December 27, 2019

Zacks Equity Research

Maybe you're a seasoned investor and have a good track record with stock-picking. And you may have a robust retirement portfolio - perhaps including some Zacks Top Retirement stock selections such as:

EPR Properties (EPR), Gaming and Leisure Properties (GLPI) and Camden National (CAC).

If this sounds like you, then here's a question: With your background and skills, should you manage your own retirement investments?

Maybe ...if you're an exceptional investor who can expertly manage risk and keep up perfectly resolute emotional control in the face of market volatility. Be that as it may, for most investors, there might be better ways to accomplish long-term retirement investing objectives.

Active stock trading requires a very different investing approach and risk - reward mindset than investing for retirement.

Diversification vs. Stock Picking

Picking individual stocks has the potential for huge returns - but also carries a lot of risk, which is particularly hazardous when investing for retirement.

A study done by Hendrik Bessembinder of equity markets over nine decades found that just 4% of the best-performing U.S.stocks generated all the market's gains. The rest were flat - the gains of the next 38% were wiped out by the bottom 58%, which lost money.

For even the most expert stock pickers, the chances for long-term achievement are thin.

Is Investing Success All In Your Mind?

Most people think they can make rational investment decisions, but research indicates the opposite is often true. Investors followed in a DALBAR study performed significantly worse than the S&P 500: For the 30 years between 1986 to 2015, the average investor earned just 3.66%, whereas the S&P 500 produced a 10.35% return.

It is interesting to note that the period covered by this study includes the 1987 crash, the 2000 bear market, and the Great Recession of 2008, as well as the bull market of the 1990s.

This study suggests that one key reason for investor underperformance is trying to time volatile markets - and that irrational behavior biases tend to compound investor mistakes.

Interestingly, even savvy traders tend to underperform because they can't help but allow emotions to drive investment decisions. They may be overconfident and misjudge risk, latch onto a price target, or perceive a pattern that isn't there. This "behavior gap", over the long-term, can be catastrophic with potential underperformance of hundreds of thousands of dollars sabotaging your retirement.

The Key Takeaway for Retirement Investors

When it comes to managing your assets for retirement, you must look at performance over the course of years and decades - not weeks or months. Because most traders generally tend to focus on the short term, they may not have the right mindset to achieve successful long-term outcomes.

Does that mean you should quit trading? Not really. One plan is to take 10% of your investable resources and trade to create alpha and look for outsized returns.

But the bulk of your wealth - those assets earmarked for retirement - should be invested using a more measured, conservative, risk management approach to generate steady, compounded returns so you can safely reach your retirement goals.

Do You Know the Top 9 Retirement Investing Mistakes?

Whether you're planning to retire early or not, don't let investing mistakes derail your plans.

If you have $500,000 or more to invest and want to learn more, click the link to download our free report, 9 Retirement Mistakes that will Ruin Your Retirement.


This report will help you steer clear of the most common mistakes, like trying to time the market, lack of diversification in your portfolio, and many more. Get Your FREE Guide Now
 
EPR Properties (EPR) : Free Stock Analysis Report
 
Camden National Corporation (CAC) : Free Stock Analysis Report
 
Gaming and Leisure Properties, Inc. (GLPI) : Free Stock Analysis Report
 
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Zacks Investment Research