“When I look at my life I’m surprised that…” These words kept on staring at me. I had been invited to a women’s dinner in New York and given an assignment: a 2-minute story, which would start with “When I look at my life I’m surprised that…” Next to those words, were the names of my 15 peers: Shiza Shahid (Founder Malala Fund – Ted Talk); Maysoon Zayid (Actress, Comedian, Advocate – Ted Talk); Shanley Knox (Brand Strategist Wolf & Wilhelmine – Ted Talk); Khalida Brohi (Founder Sughar – Ted Talk), to name a few. I felt honored to be part of such a group but also very humbled. What on earth was I going to say and how could I relate with such highflying women? I was bound to fall short.
I did my homework and wrote a convincing 2-minute speech, carefully structured. I was prepared and on I went with my notes, ready to speak in front of this audience. But, while listening to a few of the stories, it struck me: the women present were all being so genuine. I could relate because they were being vulnerable. This forced me to reflect and ask myself what really surprised me in my life. Out with my speech, in with improvisation.
When I look at my life, I am surprised and amazed by where I stand today, well grounded and appeased, and how I actually got there.
Today, I run a growing money-managing firm, adding one trusting client at a time and that trust can only be achieved through vulnerability and genuineness. What I say to clients will not always please them; neither does it necessarily help grow my firm’s business. However, when it comes to financial planning, assessment and investing, trust is paramount and cannot be faked or rushed.
Since that dinner in New York, I’ve been applying that question to many a situation and it has helped me in identifying issues, which in itself is already half the answer.
In regards to investing and financial planning, I cannot help but be surprised by the common mistakes many of us fall for. Take the time to go through what I think are the 7 MOST COMMON MISTAKES we make when it comes to financial planning/investing and adjust your strategy accordingly.
1. Forgetting inflation
Holding a few months of salary on hand to deal with emergencies is excellent, but keep in mind that while inflation is low today, it will slowly eat up your savings. Based on 2% inflation per year (which again is low), in about 30 years the value of your savings, if parked in cash, could be sliced in half.
Procrastinating can take many forms: living beyond your means; staying with a overpriced advisor; not being in the know of your family’s financial situation; postponing the draft of your will. Whether it’s personal sabotage, holding on to status quo, or delaying an annoying task, procrastination will hurt you.
3. Trying to time the market
Investing differs greatly from trading. Investing is for the long run and that’s good news, as it will help dampen any bumps you encounter. All investors lost money during the 2008 crisis, but those who invested in financially sound companies, made their losses back and then some. With investing, time is your friend and the younger you are, the better you are positioned.
Paying more doesn’t always get you better service, quite the contrary: did you know that front-loaded mutual funds are guaranteed to make you loose money initially? To buy into such a fund, any investor will pay an initial fee of as much as 5.75%. Over $100,000 that’s close to $6,000. Read the fine prints.
5. Expecting miracles
Great returns come with risk. This will always be spot-on and if it looks too good to be true, it certainly is.
6. Do-it-yourself mentality
While the dangers of performing your own electrical work might be obvious to you, mainstream investors increasingly seem to think investing is straightforward. The DIY investing route is a complicated and emotional one, which will require from you stellar objectivity, a solid understanding of financial concepts and the ability to navigate a maze of information.
7. Excess diversification
Diversification is a trendy word these days and when done properly, it is a great shock absorber, but “how much diversification is enough”? Major players in the industry are guilty of making believe that real equity returns can be earned at little to no risk. If you can’t bear the risk, then you maybe you shouldn’t invest in the equity market. Great returns come at a price.