Maybe you’re a seasoned investor and have a good track record with stock-picking. And you may have a robust retirement portfolio – perhaps including some Zacks Top Retirement stock selections such as:
AbbVie (ABBV), Amgen (AMGN) and Bristol Myers Squibb (BMY).
If this sounds like you, then here’s a question: With your background and skills, should you manage your own retirement investments?
Maybe…if you’re an exceptional investor who can expertly manage risk and keep up perfectly resolute emotional control in the face of market volatility. Be that as it may, for most investors, there might be better ways to accomplish long-term retirement investing objectives.
That’s because the risk – reward scenario and investing approach is completely different for long-term wealth building and active stock trading.
Managing Retirement Investments: Stock Picking vs. Diversification
While stock picking can potentially result in outsized returns, its outsized concentrated risk can pose significant hazards for retirement investors.
A study done by Hendrik Bessembinder of equity markets spanning nine decades revealed that only 4% of the best-performing U.S.stocks produced all the market’s increases. The rest were flat – the gains of the following 38% were offset 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?
Most people think they can make rational investment decisions, but research indicates the opposite is often true. Investors followed in a DALBAR study performed significantly worse than the S&P 500: For the 30 years between 1986 to 2015, the average investor earned just 3.66%, whereas the S&P 500 produced a 10.35% return.
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.
What It All Means 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.
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.
AbbVie Inc. (ABBV): Free Stock Analysis Report
Bristol Myers Squibb Company (BMY): Free Stock Analysis Report
Amgen Inc. (AMGN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
