Episode 7: Common Mistakes that Investors Make

ABOUT THIS EPISODE

On this episode of the Build Your Life Podcast with Financial Expert John Browning we're chatting about common mistakes that investors make. 

Tune in to hear about the top two mistakes that are most common and why this happens so easily in today's world despite all the information that's available. Don't make assumptions about what you should or shouldn't do...let John help you avoid these pitfalls. 

For more information, visit www.GuardianRockWealth.com to learn more about what John can do for you.

Welcome to the building your life podcastwith John Browning. Building your life as a relaxed and unedited conversation with financialexpert John Browning. Well, Gon, how are you doing today? Star, doing great, and how are you? I am very well. That's abeautiful day. Spring has sprong and things are great. So always goodto beat with you again and talk all things financial. So we want toget into some talk talk today really about some common mistakes that people make,and I'm sure that you get, you've seen over your career. Just sosome basic mistakes that people make as they're planning their their investments, their life, putting together their portfolio. What would you say? Can you give ussome example, John, of a couple common mistakes that people typically make?Yeah, there's there's actually there's a there's a lot of them, so nary. Narrowing that down to two is a little bit of a challenge, butI would say the most common the that...

...we see is either to oversimplify orover complicates, and I put that in kind of the same category. Huh, and people who oversimplify the process the ideas well, I'll just buy theindex and I'll close my eyes and go away and things will turn out inthe end right. And the ones who overcome complicate the process try and,in addition to their own job that they have, you know, nine hundredtwenty five or sometimes, you know, much longer than that, in additionto that, they try and figure out all of the different items that aregoing on in the market place. That, frankly, I can't do, andI do this full time. And they overcomplicate the process and end upwith overwhelm or simply making mistakes. And it's not that they're they're not smartor brilliant with what they do. It's just that there's just simply not possiblein a complex, adaptive market that is...

...our economy. So, though,that's that's probably the most common two things that we see. And for anI put those in the same category. For a second one, it woulddefinitely be just simply ignoring the issue head in the sand. Yes, I'msure it'll all work out. This is not an urgent problem. It mightbe an important problem, but it's not urgent right now. I'd rather buythat new car or I'd rather do go on that vacation or whatever. Yeah, yeah, and as a great point, because we are people who love impulsebuys and we love. We are people typically that like an emotional feelof yeah, a new car, vacation or something, because that's an immediategratification. Putting money aside for the next thirty or forty years that's that's notreal immediate. So how do you help people overcome that emotional aspect of itand deal with some practicality of what we really do need to be to besaving? How do you help people walk through that? Well, I thinkignoring the idea that it isn't a there...

...is an emotional aspect of it isanother mistake, frankly, and and it's one that a lot of frankly professionalinvestors make. And there was a big movement maybe ten fifteen years ago calledquantitative investing, and it's a fantastic idea. I love the theory and I actuallyuse it, but I don't use it to the exclusion of all else. And the idea behind it is that you take the emotion out of investing. And you'll still hear that today. You should take all emotion out ofinvesting. The problem with that is it is it's an emotional market. I'vesay, and I'm an emotional person right that's right. That's right, andyou're seeing that right now in particular, and this is going to date thispodcast, but but we're dealing with the coronavirus and on top of that,to pile on, there's a there's a oil price war, which was gotto be the worst time in the world...

...for that to happen, because youalready had oil prices depressed because of the coronavirus and and the lack of travel, you know, countries shutting down their borders, airports shutting down and peoplejust traveling less. And then you've got an oil price war between Saudi Arabiaand the Russians and it's just driving down the price of oil, which hasfollow on effects all over the globe with many industries absolutely well, let's pauseit for just saying because you're right, we're in the midst of March,two thousand and twenty. Coronavirus is rampant right now. People are canceling vacations. I just talked to a client earlier day who knew somebody, a salesmanfor a big company, who had three trips plan and this guy sells,you know, million dollar equipment to doctors and hospitals three trips canceled and youstart thinking about the fears and what that could do to the stock market andthings, and that's an emotional idea, right. We're hearing from the newsall this doom and gloom and people are scared. How's that play out tosomebody WHO's invested in the market? What's...

...their typical response that? Because thatis an emotional response, right, that's right. And and your typical investor, now, I mean many of them have been sort of I'll call atrained to, not pianic, but but we're seeing just a lot of panicand that that's a parent in as you watch the prices move downward at amore rapid piece than we have seen in the history of the stock market,including in the s. We did not see it go down this fast.And there's just panic out there and it is not helped by, you know, entire government's piano as well. And I don't want to make light ofthe problem. It is a major issue and and it's a horrible thing that'sthat's happening. But one of the things that were also seeing, I believe, and it ties in with that first...

...thing about oversimplifying the process, isso many folks just piled into the index because that was easy, and welike easy, right. Like easy, sample free, we like those things, and the index is essentially gotten down to it. It's free and it'seasy and investors, some investors, just think that's the way to go.But by definition you're buying a lot of subpart stocks and you're, by definition, relegating yourself to average. Never have gotten up out of bed. Iwant to be average today, but that's what you're doing when you oversimplify theissue and when everybody goes into the same group of stocks, when they getout and they panic, they're exiting the exact same group of stocks, whetherthey're great stocks or whether they're really not so great stocks, and so everybodykind of gets gets punished all I want right. That's part of the increasedvolatility right now. Well, and here's...

...something I guess I want to justthrow in for people like you, John. You know, it's too easy forUS investors to listen to the media in an in a crisis like thisor any crisis, and to take our cues from the media versus calling ourfinancial advisor like you and say, okay, John, what your take? What'sgoing on? Because you you should have a better overall view of themarkets and and really what's going on to help calm my fears. So Ithink part of what is striking me as I'm hearing you, is we needto make sure that we have a financial professional like yourself who's helping us buildour portfolio and we have communication with you in times like this, that I'mnot watching the media and taking my cues from them, but I'm calling youat the same time going okay, John, what's going on, and hopefully you'recommunicating as well out to your constituents. Right. So talk to me alittle bit about the communication aspect that that helps deal with the fears thepeople have, are the emotional ups and...

...downs, roller coasters that we have. When we have a stable voice, a voice of reason, let mecall you, to call and say, okay, John, what's going on, what do you take? What do you meet? What's this mean,John? Well, the media gets paid more for sensationalism. They sell moread space, more people watch and the more sensational it is. And unfortunately, as we've seen in away from the investing side of things, negativity,yeah, sells, and so that sells media space and add space. Sothat's what you're going to hear more of if you listen to the MEA,and you'll get the occasional, you know, positive story. You know, keepcalm, this too shall pass you. You'll get that as well. Butthe the what we do is we look at the entire picture and,frankly, right now is when the portion of your portfolio, and you shouldhave a portion of your portfolio. Almost...

...anyone should have a portion of theirportfolio that is actually appreciating rather than depreciating at markets like this, or atleast staying stable, and when that happens, then your your balance and your portfoliogets out of wax. So you rebalance, and what that means isyou're actually starting to buy equities right now while they're going down. But asyou saw in the two thousand and seven, two thousand and eight, just tobring it back to the most recent issue, that we had, thelargest outflow from the equity market happened at the very bottom of the market.So what that means is most people, most investors, were selling out oftheir position at the very bottom of the market, which is obviously the exactopposite of what you should have been doing at that point in time. Butpeople begin to get fearful and it's very difficult to buy or even start buyingin a market environment like we're in today. Yet it's exactly what you should startto do. I'm not saying you...

...put you know everything. You haveto work today, because we could go down further and and frankly, wedon't know. That's right. Yeah, I remember growing up on schoolhouse rock. I don't know if you remember that or on yeah, there was oneof them. is like by low, sell high, get a piece ofthe Pie. That's always just stuck with me. So you're right, thisis a an opportunity for most people to buy, knowing that, if welook back on history, the stock markets going to come back. You don'tknow when it might go lower, but you get in, and I thinkthe whole deal is not handaking, calling your advisor, calling John, andsaying, okay, what your take? Where should we go? What elseis going on? You mentioned this a little bit ago. You didn't usethis word, but you were talking about, you know, buying into to marketsor certain portfolios and things. I want to talk about diversification and whydiversification is important, and you just kind of mentioned because you said, youknow, you should always have a portion of your portfolio that's actually rising orincreasing or staying stable, maybe while other...

...parts are going down or some soexplain diversification. How? What is that and how does that play into aproper portfolio? Well, diversification and acid allocation are often used interchangeably. Diversificationreally is talking about diversifying within an asset class. But does that mean?What does that mean? That's that's a what's a jargon thing? Yes,you're right. So. So, diversification within an asset class means that insteadof buying a hundred percent of your portfolio in and say ibm or apple orsomething like that, that you buy a stock in apple, you buy astock in Microsoft, you buy a stock, and these are not recommendations. Youjust want to make it clear by different stocks and different industries so thatif one industry is going down the other one might be propping that one up, and if one company has really bad...

...news for whatever reason, you haveother companies in there that would prop that up. That's diversification. Okay,all right. So when you talk asset class, you might be in mylimited mind, you're talking, let's say stock so I could buy stock ina technology company, stock in a medical company, stock in an oil company. Those are different industry. So one may be going up or one maybego down, but my asset class would be stocks. And in that world, is that? Am I getting that? That's correct. Okay, that's great, and you assume you would do that. The same thing and bondsor whatever, but you're putting different you got different buckets right now, puttingall the gregs in one basket per se. Is that kind of that? That'sexactly right. And Yeah, another asset classed here point is bonds orfixed income, and one of the again mistakes that people are, I think, are making today is the assumption that fixed income as an asset class willact in the same way that it did twenty or thirty years ago. Andgive it. It's really just more of...

...a a problem than anything else,given where rates are today, that fixed income is still very important to haveas an asset class, but it's not likely to behave in the same waythat it did, say, twenty, thirty or even ten years ago.So being aware of that and adjusting that asset class accordingly a super important aswell. Now I get just dive in a little bit deeper. When yousay fixed income as a cut, what would that be? Gi mean anexample? So see bond of a say company or a Treasury Bond, USgovernment security, okay, or you know, a big bank or something like thatmight issue a bond. So those would be fixed income. And okay, got up and that's something that we we might talk about on the nextepisode it because as I hear that, I think, wow, that mightbe a really safe investment. And as we go into the next episode wewant to talk a little bit about risks and safety and why should I takea risk? When should I take a...

...risk? Right now might did thetime to take a risk, to get in when it's wow and and something. So I want to talk about that more and more. But this episodereally is dealing with emotions. I what an appropriate time for it to behere, with with what's going on in our economy, really the world riskand what is it and what types of risk should we be taking? Andreally talk about personality styles, because that plays into it as well. Butwe talked about on this one about emotions and the older coaster of emotions thatinvestors can get on and really, I think, John, what what struckme the most is having somebody that I can call, somebody I can communicatewith, like you. That's a an outside third party who has an interestin what I'm doing, but you can call me down. So I'm notlistening and reacting to the media. I'm hearing that, but I'm also goingto you and say, okay, you know my long term plan for life, and that's why I love your book d on build a life, notjust a portfolio. It really helps balance everything out so we're not at respondingin fear. Two things as we let's...

...wrap this one up. Let's talk, let's make a note and talk next episode about risk and when to takerisks and how does different personality styles play into that? And I'll share alittle bit about my story with my wife and where where we are riskwise.And I'm sure you had clients just like me, but how do you howdo you play into that? So, John, thanks again for your timetoday. Great insights and I hope people do have a solid place to aturn and if you don't, you need to call John and let him helpyou build your life and your portfolio so you can live through with peace ofmind through from ultras times like this and every other day. So thanks John. All right, thank you so thanks for listening to the building your lifepodcast was John Brownie. Be Sure to subscribe to this podcast so each newepisode will be sent to you automatically when it is released. Have a terrificday.

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