Lindsay Shetterly, CIMA®, CES™

Lindsay Shetterly, CIMA®, CES™

Lindsay is a passionate advocate for clients and this quality transcends every aspect of her role as a Principal and a Client Advisor for Glassman Wealth. For the past decade, she has advised high-net worth families and foundations, constantly fine-tuning their investment and financial plans to take advantage of ever-changing opportunities.

Lindsay Shetterly, CIMA®, CES™ has been a contributor to the Forbes Finance Council. This article was originally published on Forbes on December 5, 2016.

We’re all wired to think we’re making good decisions. Even if you aren’t sure where you’re going, your gut can provide valuable reassurance. But when it comes to investing, the best behavior is often the opposite of what your gut is telling you.

For over a decade, I’ve advised high net worth individuals on investment management and financial planning, and I’ve seen many missteps when people act on their emotions. A big part of my job is to pull the emotion out of decisions and help clients stay on track.

To help identify when your gut might be telling you the wrong thing, I’ve compiled a list of the most common mindset mistakes investors tend to make:

1. Falling In Love…

…with an investment. You love the story behind the company. You admire the management team. You’ve known the company for years and it always comes out on top. But once you’re emotionally attached, it’s next to impossible to picture your exit strategy. Or perhaps you’ve set your exit price, but once the investment actually gets there, you change your mind because (of course) you think it has more potential upside. It’s rare that this situation doesn’t end badly.

Towards the beginning of my career, I was working with a client who had half of his net worth in one stock. He was resistant to trim the position because it distributed such significant amounts of income that it fully covered his lifestyle. But within a couple of years, the stock plummeted 60% and the client had no choice but to alter his standard of living.

2. Acting Out Of Panic Or Euphoria

It’s rare that you need to act immediately, especially when it comes to investing. When others are in panic mode or you feel rushed into a decision, it pays to be patient and calm (and wait for the other frenzied investors to calm down). Think about the frenzy that accompanied the financial crisis of 2008. My clients who “stayed the course” and purchased when others were selling were rewarded with the best investment performance.

If you don’t think you could handle a 20% market drawdown without hitting the panic button, then perhaps your investment strategy is too aggressive. There are some great online resources that take your risk tolerance temperature and see how your current portfolio stacks up.

3. Letting The Tax Tail Wag The Dog

No one likes to pay taxes, but the reason you’re paying taxes is because you made money. I know it’s painful to have an increased tax bill because you sold a highly appreciated investment, but at some point those taxes will be due (unless you give the investment away, die or the position plummets). Don’t avoid selling an investment solely because taxes could be due.

This most often comes into play when clients have a very appreciated and sizable investment in a company they worked at for years. That stock helped them amass their current net worth. Fast forward to retirement and living off an investment portfolio, and any movement in the stock creates relief or anxiety. So take some winnings off the table, diversify into other assets and sleep better at night.

4. Saving Too Much For Retirement

I’m sure there are a few jaws on the floor after hearing a financial advisor say this, but it’s true. Maxing out retirement savings isn’t always realistic for some people, and here’s why: Everyone needs a cash safety net as well as some wealth that can be accessed between now and retirement age, if necessary. If fully funding your retirement account comes at the cost of carrying credit card debt or taking an emergency loan against a 401(k) plan, then it’s not worth it. Saving isn’t an all-or-nothing proposition. Find the right balance and gradually shift towards more savings over time.

5. Taking An Eye Off The Big Picture

It’s possible to go overboard on diversification. By sprinkling assets amongst a bunch of different advisors or strategies, people often think they are spreading out their risk. The unintended consequences are that they lose sight of the total asset allocation and are unaware of the amount of overlap that exists across their investments. If you feel it’s important to spread out your assets, do so in a thoughtful, purposeful way that will set you up for success in the long run, which means keeping an eye on the big picture.

Let’s say you want to have two investment advisors. You view one as your core advisor: the one who knows your full picture and has crafted an asset allocation based on your goals. The other is a family friend who is a stock picker. If you don’t share the account’s strategy with your core advisor, your overall financial asset allocation may be more aggressive than you’d intended.

Successful investing takes a lot of patience and self-evaluation. So the next time you make a financial decision, take a minute to consider whether your behavior is really in your best interest or if it’s a gut reaction that may need to be reconsidered. As investors, our decisions will never be perfect, but keeping our behavioral biases in check can help us learn from mistakes and (hopefully) avoid bad decisions in the first place.

Photo Credit: Jessica 45,

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