What are the biggest risks that investors face? It’s not politics. It’s not trade tensions. It’s not quarterly earnings season, or any other day-to-day matter. In our 70 years of experience, the biggest risks faced by investors include the following:
1. Not Investing Enough – Financial markets have been a tremendous wealth generator over the long run. Yet too many Americans who are able to save and invest, don’t. This may be because they do not have the knowledge base or a financial plan in place. For many, however, it is because they are fearful of the market’s ups and downs, which is often the result of focusing too much on the short term.
2. Overspending – This may be the most common reason that investors find themselves in financial difficulty. Often it is unavoidable due to personal circumstances. For the most part, however, individuals who budget and live within their means can avoid drawing too heavily on their portfolio to meet spending needs.
3. Pulling the Plug – Bear markets are dangerous periods for investors, but not necessarily because stock prices are falling (which is temporary). Instead, bear markets tempt investors into making bad decisions, like cashing out of their portfolio at a market low — again, a symptom of short-term thinking.
The good news about these risks is that they can be addressed by developing and adhering to a long-term financial plan.