Retirement mistake no. 1: Overconfidence in your investing skills
Financial planning Rule #1, don’t believe everything you hear. If you ask anyone who has invested in the stock market over the years what their average return was, the answers you will get will most likely range from 8 percent to 20 percent (or more!).
Here’s the reality. Every year, Dalbar Inc., a respected independent market research firm, publishes a study titled “Quantitative Analysis of Investor Behavior.” The study measures the actual performance of stock and bond investors and compares that performance to various benchmarks.
The latest study found that, while the S&P 500 returned 8.35 percent over a 20-year period ending in 2008, the average equity investor earned a pathetic 1.87 percent, which was less than the inflation rate of 2.89 percent.
Bond investors fared worse. They earned returns of 0.77 percent, compared to 7.43 percent for the index.
So, if you are relying on your investing skills to fund your retirement, you should be worried. Very worried. Strong, sound financial planning means knowing these issues and learning to navigate around them. Financial planning is a very REAL part of a healthy, long life — without it, we’re all at risk of being broke and broken.
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