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How Trading Your Own Retirement Can Fleece Your Financial Future - November 05, 2019

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You have a substantial retirement portfolio. You're an accomplished investor. You've done truly well selecting stocks. You probably already own a couple of Zacks Top Retirement stock picks like:

PennyMac Mortgage (PMT - Free Report) , Sandy Spring Bancorp (SASR - Free Report) and EPR Properties (EPR - Free Report) .

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.

That's because the risk - reward scenario and investing approach is completely different for long-term wealth building and active stock trading.

Diversification vs. Stock Picking

While stock picking can potentially result in outsized returns, its outsized concentrated risk can pose significant hazards for retirement investors.

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.

Those numbers reinforce that, even if you are an experienced and talented stock picker, your chances of success over a long period are very slim.

Is it Possible to Invest "Rationally"?

Investors feel they can make sensible choices, however research demonstrates that the opposite is what often happens. A DALBAR study analyzed investors from 1986 to 2015 and found that the average investor significantly underperformed compared to the S&P 500. Over 30 years, the S&P 500 produced a return of 10.35%, while the average investor return was only 3.66%.

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.

An important takeaway of this study is that investors seem to underperform because they try to time volatile markets...and irrational, emotional responses tend to these investing 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.

However, the major part of your wealth - those assets reserved for retirement - ought to be invested utilizing a more careful, conservative, risk management strategy to produce steady, compounded returns so you can securely achieve your retirement objectives.

Did you know that one in six people retire a multi-millionaire?

Read our just-released report: 7 Things You Can Do Now to Retire a Multi-Millionaire.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


PennyMac Mortgage Investment Trust (PMT) - free report >>

EPR Properties (EPR) - free report >>

Sandy Spring Bancorp, Inc. (SASR) - free report >>

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