Pitfalls of the Investment Gamble

I’m Colin Richards, president and founder of Lord and Richards, where we focus on helping people just like you achieve a safe, secure, and worry-free retirement. In our previous segment, we talked about determining whether you have enough to retire. But when is enough… enough?

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Eventually, most of you will be ready to step off the treadmill and live off the fruits of many years of hard (and sometimes painful) labor. Some of you love what you do and intend to work forever but still want to establish a financial safety net for that inevitable time when your health no longer allows you to perform at the same level. Those are the times when you must be able to rely on your investments. Whether you are planning for retirement or just want to be prepared, you must first determine whether you have enough. Our team of advisors at Lord and Richards will help you answer that question with a simple Financial Independence Review?, where we discuss your retirement expenses, current investments, and how we can help ensure those investments never run out before you run out of life.

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Additionally, you must ensure your investments aren’t carrying excessive risk that could potentially harpoon your goals and dreams of financial independence. This is one of the most overlooked steps in retirement planning; much of the financial press and those on various media platforms push the latest and greatest investment without considering the inherent risks involved. Whether it’s investing in a great technology stock or taking a major gamble because everyone is doing it, “FOMO” may cause you to enter an “investment gamble,” which is the opposite of investing. I’m not saying that investment is risk-free; however, there are calculated and manageable risks that can be part of your plan without breaking prudent boundaries. This is vital to achieve and maintain your retirement and financial independence.

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When managing investments independently, people often use “recency bias,” or the assumption that what has been happening will continue to happen. There’s a psychology to how people operate, and we’re all wired this way. Often, it is only with professional guidance that we can navigate the choppy waters and push beyond the bias to avoid consequences. For example, you may be tempted to jump on the bandwagon with a stock that is performing well. However, you don’t want to jump in and buy high just as their good performance is coming to an end.

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Overconfidence is another problem we encounter; many believe that because they’ve read some articles and listened to someone talk about it on the radio, they know everything there is to know about risk and have fully accounted for it. Anyone who assumes this level of confidence verbally or by action is setting themselves up for a fall. Recently, we worked with someone who truly felt that they had accounted for everything. As they sat down with one of our gifted and skilled certified financial planners, they discovered areas of exposure they weren’t previously aware of. While the road can be fraught with pitfalls and difficulties, I have helped thousands of people, including members of my team, walk through it without fear.

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Whether you’re an investor or a businessperson, blind spots are inevitable. When driving a car that doesn’t have modern bells and whistles, cutting into a lane where you have a blind spot could be a dangerous maneuver that results in a crash. The same can happen in business and finance. You can’t know what you don't see. Don’t overlook the possibility of hidden things that could hurt you. Get a second opinion from someone with a different point of view. We often focus on uncovering opportunities that could help us. While opportunities are wonderful, unknown dangers are even more crucial to be aware of.

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Another grave error we want to avoid when investing is oversimplification: assuming that a single product or a couple of strategies are sufficient to address the complex world of planning for retirement. I often meet with people who have placed all of their assets into one investment to “go big or go home.” We don’t want to go home! Losing the retirement investment game is not an option; financial independence is a must-win game. Again, don't fall prey to popular strategies on the radio, in the media, or on your news feed that are the “end all be all” of investments.

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If you want to be financially independent when you retire, you must address taxes. There are wonderful vehicles available, but they don't do everything for you. Similarly, you must also address legacy planning and what will happen with your money when you die. The possibility of chronic illness is challenging, as it is the number one cause of bankruptcy. Growth and income are other important factors to address, and the list goes on. There are wonderful tools and strategies available for all these areas, yet none of them can cover every base. The multifaceted wheel of planning for a financially independent retirement is not something you want to oversimplify by having too few strategies in your toolbox.

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Finally, the refusal to consider that one or more pitfalls could cause you to take on undue risk would be falling prey to unexamined assumptions. In other words, you’d be making an assumption about the future and potential of your investments that is too simple, disregards potential blind spots, and is overconfident and biased; you need to consider the full picture.

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How do you avoid these pitfalls? Failing to plan is planning to fail. You need a written, comprehensive plan to navigate around pitfalls and consistently strategize in advance to mitigate these risks. It begins by having a simple phone call with our wonderful team of advisors at Lord and Richards. We would love the opportunity to connect with you.

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Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.

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