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:
AbbVie (ABBV - Free Report) , NexPoint Residential Trust Inc. (NXRT - Free Report) and Broadcom Inc. (AVGO - 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.
How Diversification Differs from 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 talented stock pickers, the odds for long-term success are slim.
Is Investing Success All In Your Mind?
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 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.
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 Bottom Line 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.
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.
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.