By Jay Shareef and Chris Rhoads
Unfortunately, financial literacy is not a class taught in high school or even college—but it definitely should be. Most people graduate college or graduate school and start working without understanding how to organize their financial life, and as a consequence, they have little to no knowledge of how to create a wealth management strategy that will benefit them. This lack of education comes at a cost to professionals who are prone to making financial mistakes that could harm their retirement.
At Certa Advisors, we have seen our share of mistakes. But we also firmly believe that the proper financial knowledge and education can empower people to make better decisions. Below, we discuss the four biggest financial mistakes we see and help correct for our clients.
1. Not Understanding Diversification
Everyone knows the age-old advice to diversify their investment portfolio, but very few people follow that strategy properly. Proper diversification starts by rebalancing your portfolio frequently to ensure that you are not over-invested in one industry, company, or type of investment. The bottom line is this: true diversification is a risk management strategy. When you properly use diversification in your portfolio, you can reduce risk and maximize long-term profits, thereby extending and bolstering your retirement.
2. Trying to “Beat” the Market
You have probably heard the stories about an investor or a firm that was able to “beat” the market by turning an unusual amount of profit over a period of time and beating the market average. Such strategies focus on the short term and require a tremendous amount of energy and focus.
Unfortunately, this type of outperformance rarely lasts. And while it may be tempting to follow an up-and-coming investment guru’s short-term strategy to “beat” the market, historically, you are better served if you stick to your long-term investment strategy and foster realistic growth expectations.
3. Not Planning for Long-Term Care Costs
In 2015, 47.8 million Americans needed long-term care, and over 50% of people turning 65 will need long-term care in the future.[1] As healthy as you are now, and as unbelievable as it may seem that you could be in that situation, there is a 50% chance that you will need long-term care as you age. If you are married, it is highly likely that one of you will one day need this assistance.
There are several different strategies to prepare for long-term care. We can walk you through some of the more popular options, which include a traditional long-term care insurance option or a more hybrid policy, which combines life insurance or an annuity with long-term care insurance. These types of policies provide for your or your spouse’s long-term care needs while keeping your estate intact.
4. Not Planning for Unexpected Risks
Very few people, if any, predicted COVID-19 or the Great Recession. But these two events have made it abundantly clear that we need to consider unexpected economic downturns as part of our retirement planning and wealth management strategy. We also need to consider unexpected risks that are more personal in nature, such as divorce, illness, or even higher healthcare costs, and how these possibilities could affect your strategy in retirement.
We’re Here for You
Like most people, you may have made some financial mistakes along the way. But the good news is that many of these so-called mistakes can be corrected, and your wealth management strategy can gain resilience and stability for the long term. If you don’t already have an advisor helping you do that, reach out to us at (301) 798-5250 or schedule a phone call now.
About Jay
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at Certa Advisors. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. To learn more about Jay, connect with him on LinkedIn.
About Chris
Chris Rhoads is a co-founder and vice president of Certa Advisors. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. Chris has been married to his wife, Tia, since 2009 and they live in Frederick, MD, together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes about which he cares passionately. To learn more about Chris, connect with him on LinkedIn.
[1] https://www.morningstar.com/articles/957487/must-know-statistics-about-long-term-care-2019-edition