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The Extreme Risks of Trading Your Own Retirement Assets - December 04, 2019

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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:

Jernigan Capital , Darden Restaurants (DRI - Free Report) and CenterPoint Energy (CNP - Free Report) .

If you did something similar, would it be advisable for you to trade your own retirement nest egg?

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.

Managing Retirement Investments: Stock Picking vs. Diversification

While stock picking can potentially generate outsized returns, its excessive concentrated risk can present huge perils 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.

For even the most talented stock pickers, the odds for long-term success are slim.

Is Successful Investing a Mind Game?

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 worth noting that this period included the 1987 crash and enormous bear markets in 2000 and 2008, and the positively trending market of the 1990s as well.

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.

What It All Means for Retirement Investors

Your retirement portfolio ought to be dealt with a technique of performance over decades - not days, weeks or quarters. Most self-coordinated investors will in general miss the mark with regards to long-term outcomes.

We're not saying you should not trade at all - far from it. If you enjoy trading, perhaps you should put 10% of your investable assets to work in short-term investments to seek alpha and 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.

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.


See More Zacks Research for These Tickers


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Darden Restaurants, Inc. (DRI) - free report >>

CenterPoint Energy, Inc. (CNP) - free report >>

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