If we are true with ourselves, most everyone can think of a time they made a poor investment decision. That mistake does not always result from choosing the wrong mutual fund or stock. It can simply be from a missed opportunity. Either way, you can bounce back from these mistakes, and work to avoid making them in the future. Let’s look at why this is and how this can be done.
- Determine the reason ‘Why’
The reasons why can be numerous. Maybe you didn’t want to miss out on a market (or company) that was experiencing high growth and you invested just before it started to go down. Or, maybe you sold at the worst possible time – when the market was down and the investment proceeds weren’t needed for five or more years. Lastly, maybe you didn’t have enough information to make the right choice in the first place.
How can this be avoided in the future? You’ll need to know how long you have to invest and what the objective is for the money. Most importantly, you’ll want to know how much of a monetary loss you are willing to take on for the chance of growth. Once these are clear in your mind, you’re in a position to choose investments that suit you.
- Increase savings rate
One method of getting your portfolio back to where it was before the mistake is to increase your savings rate. This is helpful if your portfolio has a long way to go before it gets back to its pre-mistake balance.
During your pre-retirement years, there many instances that allow you to put more into savings – your mortgage is paid off, the kids have finished college, you’re now empty nesters, or you very well may be at your peak earnings years. In any of these instances, you have room to stash more away and boost your recovery.
- Recalibrate your goals
Another option is to look at your existing goals and adjust them to improve your outlook. For example, can you work longer than you planned before retiring? Is it possible to reduce some of your living expenses? Would downsizing your home reduce expenses and/or give you additional savings? If not, can you work part-time to offset some of your costs?
These are not the only options available. But how much you spend in retirement is one of the biggest factors that determines your retirement outlook.
- Get a real plan in place
Lastly, and most importantly, is having a plan in place. This will help you gauge whether or not you made a mistake in the first place. If your 401(k) balance drops because of a stock market decline and you have an aggressive allocation, your investments may still be appropriate for you if you have 15 or more years before you retire.
The point is to know exactly where you stand relative to your goal. This will help clarify what investment decisions you should be making going forward to put yourself in a better position.
If you’re wondering whether you’re prepared for your financial future, or looking to set up an income plan for your own retirement, we can help. Set up an appointment with one of our advisors today to begin the conversation.
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The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual's goals, time horizon, and tolerance for risk. All opinions reflect those of the author. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining value.