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Signs That Your Trading Will Ruin Your Retirement - March 06, 2020

Published 03/05/2020, 09:09 PM

You have a significant retirement portfolio. You're an experienced investor. You've done pretty well at picking stocks. You probably even own a few of Zacks Top Retirement stock picks like:

Tyson Foods (NYSE:TSN), PennyMac Mortgage (PMT) and Jack In The Box (JACK).

If that sounds like you, should you actively trade your own retirement assets?

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

Picking individual stocks has the potential for huge returns - but also carries a lot of risk, which is particularly hazardous when investing for retirement.

A study done by Hendrik Bessembinder of equity markets over nine decades found that just 4% of the best-performing U.S.stocks generated all the market's gains. The rest were flat - the gains of the next 38% were wiped out by the bottom 58%, which lost money.

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

Is Investing Success All In Your Mind?

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%.

Importantly, this period included the 1987 crash and big bear markets in 2000 and 2008, but also the bull market of the 1990s.

This study suggests that one key reason for investor underperformance is trying to time volatile markets - and that irrational behavior biases tend to compound investor mistakes.

Interestingly, even savvy traders tend to underperform because they can't help but allow emotions to drive investment decisions. They may be overconfident and misjudge risk, latch onto a price target, or perceive a pattern that isn't there. This "behavior gap", over the long-term, can be catastrophic with potential underperformance of hundreds of thousands of dollars sabotaging your retirement.

The Bottom Line for Retirement Investors

Your retirement portfolio should be managed with a strategy of performance over decades - not days, weeks or quarters. Most self-directed investors tend to fall short when it comes to long-term results.

Does that mean you should give up trading? Not necessarily. One solution is to take 10% of your investable assets and trade to generate alpha and seek outsized returns.

But the bulk of your wealth - those assets earmarked for retirement - should be invested using a more measured, conservative, risk management approach to generate steady, compounded returns so you can safely reach your retirement goals.

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

Tyson Foods, Inc. (TSN): Free Stock Analysis Report

Jack In The Box Inc. (JACK): Free Stock Analysis Report

PennyMac Mortgage Investment Trust (PMT): Free Stock Analysis Report

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Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
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