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Don't Make This Investment Mistake

UPCOMING Workshop:

Getting ready for your best retirement

North Dallas i January 12, 2019

We are going to kick off the new year by teaching you the habits needed in an easy to understand format so that you can live your best retirement tomorrow. As a bonus, Bob will discuss recent stock market troubles and talk about 2019 and the steps you need to take to protect and grow your money. Click HERE to register.


Investors are potentially making two mistakes right now. First, Bank of America reported last week that investors dumped stock-based mutual funds for the week ending December 12th. That in itself is no big news. However, the big news is that it was the second largest number of funds sold on record. Why is that a mistake? For most investors who invest in mutual funds, they buy and they hold and then some sell when the worst of circumstances hit. As an investor, you should be able to stomach a -10% drop in the stock market and be OK. That is a pretty normal decline.


It appears that -10% sent many heading for the exits. It is a little too soon to declare the end of the bull market although the evidence is high. I think you need to see way more declines before you make the decision to exit. This is a Trump market and anything can happen. 


Remember, Trump has everything hinging on the success of the stock market. Thus, any form of manipulation will do.  


Bank of America then released a report that this past week investors invested a record amount in bond funds. Evidently, they sold stock funds and bought bond funds. Here is the second mistake investors could be making. They could be jumping from the frying pan into the fire. I don't think that anyone can predict interest rates. On one hand, you have the federal reserve board raising rates which supports a rising interest rate environment.  On the other hand, if we head into a recession, interest rates could be much lower. Why do I bring up interest rates? Interest rates move inversely with the price of bonds. As interest rates go up, bond prices go down and vice versa. If price of bonds are going down that should have a negative effect on bond mutual funds. Plus, if the bond market sees defaults of bonds, that could greatly effect the value of bond funds.


So, what is the second mistake?


Investors moving money into bond funds thinking that they are safe. Bonds are risky and can lose money. However, it might be your only move in a 401 K plan and I get that.  Just don't make the mistake of thinking you moved into a safe haven with bond funds.


What is the right move? Forget long-term investing and think investment strategy. This is counter to what Pop Culture Finance preaches. At the same time, risk is high and the worst decision is not being proactive or ready to act. Stock and bond funds aren't the only investment choices.


For more information on alternative strategies, send me an email at bob@prudentmoney.com or go to the Ask Bob site and send me a message.