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Lorena Smalley

WEI WOO, RESEARCH CAPITAL

We are very excited to have our long-time Friends of WSAC partner, Wei Woo, of  Research Capital Corporation, provide us with a guest blog post.  

This month he explores some of the most common mistakes of investment.

” The financial behavior of retired investors has a critical impact on the success of their retirement portfolios in both up and down markets. Because we are talking about their financial nest egg that they cannot afford to lose, especially since we are in a longer-term higher inflation economy, retired investors tend to have more emotional attachments to the performance of their portfolio, which can potentially lead to mistakes that may be hard or near impossible to recover from.
Below are some of the most common mistakes I have encountered in the past 15 years of managing finances primarily for retired seniors, in addition to the 20 tips described in the article attached.

Buy High , Sell Low

Contrary to successful investing, buying low and selling high, many investors end up doing the opposite. The 1st factor may be a result of crowd mentality, if you hear from neighbors , family, and friends, that everybody is panic selling, you may tend to sell. If you hear from everybody about a hot investment that could make you rich, you may jump into the same boat because of all the excitement. The 2nd factor may be due to fear and loss aversion, since you see your investments currently being down as potentially a permanent loss of capital, and the media headlines are extremely negative with alot of doom and gloom,  you feel the urge to sell to try to avoid further potential losses.
We know however that in the past 100 years, the winners and losers in the financial markets often rotate year over year. For example, in 2020, oil and banks were the biggest losers, while technology stocks were the biggest winners. However, those oil and bank stocks came back very strong in 2021.
 In 2022, oil stocks were the biggest winners, and technology was the biggest loser. If you panic sold your technology holdings and bought more oil stocks ( chasing after returns that already was made , and thinking the performance will repeat ), because the media said oil was going to $ 200 by end of 2022, you would be down quite a bit for 2023, as oil stocks are down significantly by about as much as technology stocks are up so far this year with strong gains.

Trade Too Often 

When the markets and economic news are very volatile, for example, the recent collapse of banks around the world such as Credit Suisse, you feel the urge to make big changes to your retirement portfolio. It helps by taking a breath, and evaluate if your portfolio holdings still make sense in the bigger picture of the economic and market trends we are in.

 

If there are reasons to change, then change, but it should be more proactive rather than reactive. For example, we are likely in a long-term investment trend where dividends will make up the majority of your investment returns, compared to the past 40 years where capital gains made up most of your returns. As well, alternative investments now have an important growing role to provide diversified returns, compared to just traditional retirement portfolios.

Home Country Bias 

Investors tend to invest in what they are familiar with, which usually means their retirement portfolio could be mostly Canadian-based. However, the US financial markets have made double the return on a rolling 10 years basis since 2010 compared to Canada.

 

Yet between 2000 to 2009, the Canadian markets did better than the US over this time frame. Having both makes sense, as well as a smaller quiver of international such as European and Japanese investments. Emerging market investments is an area I do not have too much exposure to for retired seniors, due to the dramatically growing political risk between China and the West.

Trying to Time the Market

The biggest mistake of all in my 15 years of experience. Not even the market experts you see on TV or hear on the radio every day can accurately predict the market over the short term ( less than 1 year) on a consistent basis. In fact,  I have seen that the more market experts predict the market may go one way,  ironically the more likely it will go the opposite!

 

In 2022, as a result of the Ukraine war, the financial consensus by many TV experts seems to be that oil was going to end up a lot higher than where it actually becoming by end of 2022. We also know that the real economy and the financial markets are two different animals, as financial markets generally are tied to economic expectations of the future over the next 6 to 18 months, instead of the current economic reality today. This is why you can have financial markets go down when the actual economy is relatively good and very confusing to many people, why financial markets can and do go up when the actual economy is doing bad

 

If you have questions about this article or anything else related to your retirement finances, please contact me. You can also see me during my financial seminars for retirees I regularly host.  ”

 

Wei Woo
780-299-0760
WWoo@researchcapital.com
Investment Advisor, CIM, EPC
Research Capital Corporation
Private Client Division
3481 Allan Dr. SW
Edmonton, AB T6W – 3G9

CLICK HERE to download the Guest Blog Post PDF
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