The Three Mistakes Investors Make Managing Their Own Money test

Posted by: Leo Marte, CFP®, MBA | May 9 2022

Investors of all sizes engage in financial markets for a variety of reasons. Most look for a growth source to build wealth over time, while some primarily use the markets for speculation. This article is for Christians that seek long-term growth, helping them avoid the three mistakes that could derail their goals.

Mistake #1: Taking more risk than necessary

Let’s admit that as humans, we are not the best judges of risk when it comes to our own financial decisions. When speaking with average investors, I have found that most people are focused on making the highest return on their money. They want their money to work hard to allow for retirement with dignity, charitable aspirations, or leaving an inheritance. However, more often than not, their portfolios reflect a much higher amount of risk than they need to take to meet those goals while exposing themselves to a significant downside. It may sound counterintuitive, but not everyone needs to get as high a return as possible from their portfolio. Investors need to craft a portfolio that gives the highest likelihood of meeting the goal, and sometimes taking a higher amount of risk is not necessary.

Mistake #2: Making emotional decisions

The 24-hour media cycle and constant bombardment of political commentary drive investors to make poor decisions that affect their long-term financial health. The media we consume tends to shape our opinions, or we often seek sources that validate our views to confirm what we already believe. This vicious cycle leads to buying when the economy goes gangbusters and selling when things are not going so well. The challenge is that investors are not good timers either, so they tend to make buying and selling decisions at the worst possible times.

Mistake #3: Setting up a plan and forgetting to review it

It turns out that a lack of action can be almost as damaging as acting on emotion. Investors who manage their portfolios and also subscribe to a buy-and-hold approach tend to underestimate the amount of risk they take over time because their allocations do not keep up with changes in their life.

Leo Marte is a Christian financial advisor and CERTIFIED FINANCIAL PLANNER™. Abundant Advisors provides financial advice for Christians with convenient virtual meetings. Let’s talk if you are ready to make the next move.