By Claudia Mollerup-Madsen
A September 2017 Morgan Stanley Investor Pulse Poll found that 35 percent of high net worth investors overall and 44 percent of high net worth millennial investors ranked saving for retirement as a top long-term goal.
For those who started saving for retirement early, or even if you’re just starting to save for retirement, here are some common mistakes to avoid.
Focusing on the Short-Term
It can be difficult to temper reactions to volatility, especially considering that when you turn on the news, you get a play-by-play of the market fluctuations of the day. While it’s normal for the market to ebb and flow, many investors allow their emotions to take over and make knee-jerk reactions as a result. I believe it’s important to remember that saving for retirement is a marathon, not a sprint. Evaluate investments based on their long-term performance.
Timing the Market
Often, investors try to time the market to combat volatility. While it may seem like you are being proactive with entries and exits, you could actually be causing more harm by failing to consider the cost of being out of the market. Historically, staying in the market has rewarded investors more than timing the market. The key is to remove emotion from investing and stick to your long-term goals.
Identifying Risk Tolerance
There are two common misconceptions when it comes to interpreting risk: the assumption that diversifying completely eliminates risk; and the assumption that taking on riskier assets guarantees returns. While asset allocation or diversification can be a tool to combat sudden loss in one industry or sector, it does not guarantee profit or protect against loss. On the flip side, some investors take too much risk thinking it will produce bigger returns.
Deciding how much risk you can take on depends on a multitude of factors including but not limited to your time horizon and your long-term financial goals. Make sure to consult your financial advisor to determine how much risk you should be taking in your portfolio.
As you look toward your retirement, take some time to create a plan to keep you on track. Remember, keeping your emotions in check, avoiding common mistakes and starting early are key to reaching your goals.
Claudia Mollerup-Madsen is a Vice President & Financial Advisor at Morgan Stanley.