Proper wealth management is crucial for any individual or corporate investor. However, making a wrong move—like starting too late or investing based on emotion rather than historical performance—can be detrimental to your overall returns and long-term financial health.
If you want to ensure you’re managing your finances properly, it’s important to understand some of the most frequent mistakes people make when managing their wealth. We asked a panel of Forbes Finance Council members what they’ve observed and how investors can correct common wealth-management issues.
1. Not Hiring A Fiduciary
If a client can’t trust and understand that their financial advisor has their best interests at heart, the relationship will fail. A fiduciary standard is critical to the relationship. An advisor acting in a fiduciary capacity must bring the most cost-effective and appropriate recommendations to the table or risk breaking their fiduciary duty, which can cost them in fines and/or their career. – Kevin O’Brien, Peak Financial Services Inc.
2. Ignoring Alternative Investment Options
No one is going to care more about your money and your retirement than you. You should seek wise counsel and take the time to educate yourself on various investment choices and ultimately be the one to make investment decisions, not delegate this responsibility to someone else. Consider diversification and explore alternative investment options with a truly self-directed IRA or 401(k). – Dmitriy Fomichenko, Sense Financial Services LLC
3. Lack Of Transparency About Spending Habits
A common mistake is a lack of transparency about the reality of your spending habits. It is most likely that you will continue to need to spend in retirement what you are spending now. Many people discount “one-time spends” when these one-time spends happen every year. If you know what you need to spend you can easily solve for the investment strategy and savings rate to get you there. – Sharon Bloodworth, White Oaks Wealth Advisors
4. Following Outdated Investment Strategies
Always pay yourself first and know it’s never too late to start. Never invest off of emotion, unless it’s a gut feeling telling you “not to do it.” In those cases, it’s better to have been safe than sorry. With much outside influence impacting the growth and activity of our economy, the “fix it and forget it” method is an old-school strategy that doesn’t yield the same fruits in the current era. – Sina Azari, PRESENT Financial Partners
5. Failing To Pay Down High-Interest Debt First
In the current economic environment, the most common mistake I see, particularly among young investors, is taking on too much high-interest debt, such as credit cards. People feel pressure to start saving for retirement and investing early on when they would actually get a much better return on investment by paying down high-interest debt. Once that’s under control, then it’s time to focus on investing and growth. – Ismael Wrixen, FE International
6. Being Too Conservative Or Defensive
People are risk-averse. No one wants to see their portfolio go down, and this leads to investment in “safe” securities or just holding cash for the long term. While this strategy reduces risk significantly, inflation will ensure it fails in the long term. The investments made should align with your strategy—there is no reason to invest in CDs if you are still 20 years from retirement. – Vlad Rusz, Vlad Corp. USA
7. Not Asking The Right Questions
Nearly half of Americans mistakenly believe financial advisors only give advice that is in their client’s best interest. This is a damaging misconception. Only fiduciaries are under that legal obligation. Every investor should ask their advisor questions about compensation, fee structure and fiduciary status to make informed decisions about whom to trust with their money. – Jay Shah, Personal Capital
8. Making A Plan That’s Too Rigid
Your wealth management should be a living, flexible plan. The markets are not always driven by strict, rational data and can change for countless reasons, so it is important to not just “set and forget” your financial plans. Consulting an advisor or taking time to consistently evaluate your portfolio considering market conditions and your personal goals is an important, ongoing process. – Sonya Thadhani Mughal, Bailard, Inc.
9. Misjudging Your Future Needs
I think most people misjudge their needs down the road. Start early building up savings. Put money into a retirement account as soon as you start working in your 20s, and have some funds put away in some liquid accounts (like savings accounts) that you can access quickly in case of an emergency. – Joseph Genovesi, Balanced Bridge Funding
10. Not Saving Until You’re Out Of Debt
The most common mistake is waiting until you are out of debt to save. Most people will always have a form of debt: credit card, student loan, mortgage, etc. If you are waiting to pay down your debts, it may be too late for you to save enough for retirement. It’s possible to pay down debt while saving for retirement. Focus on budgeting accordingly and consolidating your debts, and watch overspending. – Greg Herlean, Horizon Trust
11. Not Prioritizing Wealth Management Early On
The most common misstep I see when it comes to wealth management is that most people start way too late in life, and once they do start (if ever) they don’t put enough away to ever really get a foothold in their financial lives. With the rising cost of living, it’s tough to think about even building wealth, let alone managing it. The best thing is to be mindful about it. Start sooner rather than later. – Jared Weitz, United Capital Source Inc.