Avoiding Bad Trades In Retirement

If you are an investor, at some point you've made a bad trade. You purchased an investment that you thought would go straight up but it didn’t work out as planned. Over time, I have come to learn that bad trades usually happen for a few common reasons. The investor is focused on the short-term and hasn’t considered all the possible risks, nor calculated the costs of their exit.

One of my most valuable investment lessons is a perfect example of a bad trade, or in this case bad trades.

During the dotcom bubble, I was a newly minted advisor and rookie investor.   decided to try a new company called Sharebuilder to make my first series of investments.

As you may recall, they used to allow people to buy fractional shares of stocks for something like $4.95 per trade. I had a few hundred bucks and so I opened my first investment account and proceeded to buy some of the hot tech stocks of the time.

I ended up buying 10 different stocks with the hopes of becoming the next Warren Buffet.

And not to brag, but within the first few weeks, I was up 40%. I had turned my $300 investment ($250 after trade costs) into $350. It felt so good.

The next few weeks weren’t as lucrative as one of the stocks went bankrupt. 

Truth be told, I really didn’t research these companies or look at their financials to see if they were even making any money.  I just jumped on the bandwagon, assuming it would be fine since everyone else was buying these names too.

Concerned about losing my other gains, I opted to liquidate my holdings in the hopes of avoiding any other issues and ideally, getting out just in time to avoid a down turn, only to jump back in at the bottom and ride the market back up.

That’s when reality set in.  I hadn’t noticed that the cost to sell was very different than it was to buy.  It cost $19.95 to sell each investment. 

Some quick arithmetic says that if I had 10 stocks, it was going to cost me $200 to get out of the market.

I put in the orders blindly, focused on getting out of the positions rather than figuring out the possible costs to them. 

Let’s just say, I didn’t feel like Warren Buffet after my initial investment plus gains, were diminished to $150.

I went from being up 40% to losing 50% because I was focused on the short-term, didn’t consider all the risks, or calculate the full costs of my decision to get in and out of the market.

Many people don’t realize that bad trades don’t just happen in the process of investing for retirement, but they can also happen in an investors personal life as they near or enter retirement.

One of the harsh realities of work life, is that it causes us to focus on the short-term, or the things that are going on right now in our lives. 

In the moment, it may look and feel good, but looking ahead, it may come back to bite us.  I’m talking about postponing the need to eat healthier or waiting to start working out until retirement, or taking the extra time to strengthen our relationships with family, friends, and co-workers.

You want to, and intent to do those things, but fall short because of work priorities and feeling the need to save a little more for retirement. 

You’ve jumped on the bandwagon of what everyone else is doing, but you haven’t researched what might happen if your social network or marriage goes bankrupt.

Harsh reality is that relationships, our health, and mental state go bankrupt for the same reasons that companies go belly up. 

People aren’t getting out of it what they put into it.  Whether that means a company can’t turn a profit, or a spouse, family member, or co-worker feels the relationship is lopsided, people stop investing.

This leaves many people worried about losing everything, and so they scramble to fix things without calculating the costs to get out of work and go into retirement. 

They pull the trigger without a concrete plan to replace their work identity, fill their time, stay relevant and connected, as well as keep mentally and physically fit.

Within a short period of time, they feel lost, isolated, and out-of-sorts, wondering how they went from feeling profitable, to feeling at a loss. 

It happens for three very simple reasons:  Their retirement plan focused on the short-term, didn’t consider all the possible risks, nor did they calculate the potential costs of their exit.

Are you making any bad trades as you move toward retirement?

Are any aspects of your personal life headed toward bankruptcy?

Have you examined the risks and calculated the costs of not being prepared for the non-financial aspects of retirement?

Retirement today is more about you than your money.

Take our retirement priorities quiz now, and then access our free non-financial guides & resources at RetirementProject.org.


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