By: Chris J. Roe, CPA/PFS
Have you ever wondered if you’re making a big investment mistake (without even knowing it)?
Deep breaths. Hopefully you’re not.
But whether you’re new to investing or you’ve been in the game for a while, I’d like to talk to you about how to avoid some common mistakes I’ve seen in my 22 years as a financial professional.
Mistake #1: Making risky decisions to compensate for not saving enough money
Sometimes, I see doctors invest in everything from private loans and startup businesses to private real estate. While it’s great if these investments are done right (they can add value and provide a significant return), they’re also risky. Generally speaking, a doctor’s portfolio isn’t large enough to achieve the proper diversification with these investment types.
Some doctors make risky decisions with their investments because they’re trying to retire sooner, make more money for the sake of it, or live a larger lifestyle. And of course, if they cash out, they get bragging rights too!
But what happens if they lose money? In most instances, these investments are disastrous, rather than successful. Remember, hoping an investment works out is not an investment strategy. Nor is an investment a solution for not saving enough money to retire with the same lifestyle you had as a doctor.
Mistake #2: Believing their portfolio is better because they own a lot of different types of investments
Keep in mind, a complex investment portfolio does not equal a better portfolio overall. Some doctors, and other investors too, think having many different types of investments, especially exotic investments, like hedge funds and private deals, creates a more sophisticated investment portfolio.
But, in many instances, having too many investments in one’s portfolio causes problems, such as to much of one investment, more risk than you want to take, and increased trading and investment costs . According to Leonardo Da Vinci, “Simplicity is the ultimate sophistication.” At Rx Wealth, we create an investment portfolio that is based on financial science, broadly diversified, low cost, and simple. Value is added through execution, review, and monitoring.
Mistake #3: Trying to beat the market with active management and by ignoring taxes
Perhaps the biggest mistake I’ve seen happens when people believe they can beat the market consistently. And, they overpay to do it. There are countless investment professionals out there who are handsomely paid to beat the market, and most cannot do it even once, let alone with any consistency. It’s generally luck, not skill, that allows an investor to beat the market.
At Rx Wealth, our investment philosophy is simple:
- broadly diversify across stocks and bonds based on financial science
- keep investment costs low
- manage for after-tax returns
- leave luck out of the investment equation
Our strategy is summed in a simple formula: Broadly diversified stocks and bonds + low investment costs + manage taxes + your tailored strategy = Success
If you want to avoid these three common mistakes in investing, we should talk. Please contact us to schedule a time.
This content is developed from sources believed to be providing accurate information, and provided by Rx Wealth Advisors, LLC for general informational purposes only.. It may not be used for the purpose of avoiding any federal tax penalties and in no way is meant to provide specific tax, legal or financial advice.. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.