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The Extreme Risks Of Trading Your Own Retirement Assets - November 11, 2019

Published 11/10/2019, 09:18 PM
Updated 07/09/2023, 06:31 AM
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You have a substantial retirement portfolio. You're an accomplished investor. You've done truly well selecting stocks. You probably already own a couple of Zacks Top Retirement stock picks like:

Grupo Aeroportuario del Sureste (ASR), American Eagle Outfitters (NYSE:AEO) and Cedar Fair, L.P. (FUN).

If you did something similar, would it be advisable for you to trade your own retirement nest egg?

Perhaps...if you're the "one in a million" investor who can expertly manage risk and maintain unflinching emotional control in volatile markets. But for most, there may be better strategies to achieve long-term retirement investing goals.

That's because the risk - reward scenario and investing approach is completely different for long-term wealth building and active stock trading.

Diversification vs. Stock Picking

While stock picking can potentially generate outsized returns, its excessive concentrated risk can present huge perils for retirement investors.

In fact, a study done by Hendrik Bessembinder revealed that only 4% of equities produced all of the stock market's gains over the last 90 years. All other stocks "broke even" with the increases of 38% canceled out by the losses of the bottom 58%.

For even the most expert stock pickers, the chances for long-term achievement are thin.

Is Successful Investing a Mind Game?

Investors feel they can make sensible choices, however research demonstrates that the opposite is what often happens. A DALBAR study analyzed investors from 1986 to 2015 and found that the average investor significantly underperformed compared to the S&P 500. Over 30 years, the S&P 500 produced a return of 10.35%, while the average investor return was only 3.66%.

It is interesting to note that the period covered by this study includes the 1987 crash, the 2000 bear market, and the Great Recession of 2008, as well as the bull market of the 1990s.

An important takeaway of this study is that investors seem to underperform because they try to time volatile markets...and irrational, emotional responses tend to these investing mistakes.

Curiously, even experienced traders tend to underperform since they can't resist the emotional urge to make impulsive investment choices. They might be overly self-assured and miscalculate risk, get attached to a price target, or perceive a pattern that does not exist. This behavioral fallacy, over the long-term, can be disastrous with potential underperformance of a huge number of dollars disrupting your retirement.

The Bottom Line for Retirement Investors

Your retirement portfolio ought to be dealt with a technique of performance over decades - not days, weeks or quarters. Most self-coordinated investors will in general miss the mark with regards to long-term outcomes.

Does that mean you should quit trading? Not really. One plan is to take 10% of your investable resources and trade to create alpha and look for outsized returns.

However, the major part of your wealth - those assets reserved for retirement - ought to be invested utilizing a more careful, conservative, risk management strategy to produce steady, compounded returns so you can securely achieve your retirement objectives.

Do You Know the Top 9 Retirement Investing Mistakes?

Whether you're planning to retire early or not, don't let investing mistakes derail your plans.

If you have $500,000 or more to invest and want to learn more, click the link to download our free report, 9 Retirement Mistakes that will Ruin Your Retirement.


This report will help you steer clear of the most common mistakes, like trying to time the market, lack of diversification in your portfolio, and many more. Get Your FREE Guide Now

Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR): Free Stock Analysis Report

Cedar Fair, L.P. (FUN): Free Stock Analysis Report

American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report

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