The Dumb Things Smart People Do With Their Investments

06/09/2015 06:25 pm ET | Updated Jun 09, 2016
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Baby Boomers are making mistakes every day when it comes to their money investments, and it's costing them big-time in their retirement.

They're not going to be prepared for retirement and even if they are prepared, they're not going to have enough money to last them if they live longer than they expect, says Ken Weber, author of Dear Investor, What The Hell Are You Doing? Smart and Easy Ways to Fix the Mistakes You Make With Your Money.

Weber, 67, the owner of New York-based Weber Asset Management, says he wrote the book based on hundreds of consultations with individual investors over the years. It taught him a major lesson: "People can be very smart and still do some dumb things with their money."

When people reach 50, that's when they seriously start thinking about retirement and how they approach it, Weber says. And that's when they start making one of the two biggest mistakes that will cost them in their retirement -- either they're too aggressive or too conservative. They don't, he says, understand what a proper risk level is.

"With the too-conservative people, every time the market goes down a little bit, they see the headlines and they get spooked. They pull back and stay away from stocks and anything they perceive as having risk. They're going to fall behind in terms of purchasing power over the next 5 to 10 or 15 years."

The other side of that mistake, of course, is being too aggressive. That type feels they haven't invested enough during their working years, and now they're trying to catch up -- either day trading or investing in a small number of stocks by following "hot tips."

"Both kinds can lose money," Weber says. "The conservative people don't lose in terms of actual dollars, but they lose investment opportunity. Eventually, inflation will come back. There are always taxes to be paid. You have to stay ahead of taxes and inflation, and if you are just invested in what's perceived as the safest, you lose purchasing power over the years."

Those who are too conservative tend to put their cash into a money market fund, their bank account or low-risk bond funds, Weber says. What they should do instead is have a mix of stock mutual funds and bond mutual funds if they're 50 and older.

Of course, these days there's no simple formula. In the past, people would subtract your age from 100, and that's how much, it was thought, that you should have in the stock market. So if you were 60, the thought was you should have 40 percent in the stock market.

"All of that is nonsense because everybody is different," Weber says. "Everybody has a different nest egg size and tolerance for risk, and a different family situation."

On the other hand, Weber says it's fine to be aggressive if you ride through the downturns. When clients ask him what he thinks they're going to earn, he deadpans that he can't guarantee them anything except volatility.

During the next 10 years you're most likely to make the most money in the stock market in a good no-load mutual fund or funds in the U.S. stock market, Weber says. However, between now and 10 years from now, it's nothing but peaks and valleys, he says.

"It's a roller coaster -- up and down -- and if you have the fortitude to stick with your program during the downturns, you'll be fine," Weber says. "I will guarantee when the market goes down the next time, the headlines will be screaming why it's going down another 15 or 20 or 30 percent. The point is that people get scared, and they sell near the bottom, which is the worst of all possible worlds because you locked in the losses without giving yourself a chance to participate in the bounce back up."

Weber urges people to do some basic research in how to invest in good no-load mutual funds where there's no sales charge up front. Many people, he says, buy mutual funds through brokers and pay a sale charge they don't need to do.

Weber suggests mutual funds to give you instant diversification instead of buying an individual stock or bond or even five or 10 stocks and bonds, because then you have to watch those.

"You can't buy them and let them sit there," Weber says. "When you have a mutual fund, you have instant diversification. An average mutual fund will have several hundred different securities. If something happens to one or two or 10, you're going to be OK."

In addition, Weber says people have to do some major financial planning. Everyone should sit down and figure out where they're at now and where they think they will be in five, 10 or 20 years.

"It's better to have some sort of plan than live day-by-day without giving any thought to what you're doing," Weber says. "It doesn't have to be a formal written plan, but at least sit down and take stock in yourself and your situation. Don't forget that someone who is my age and in good health will be investing for decades."

That goes back to the mistake that people make of being too conservative, Weber says. That's especially true when they get into their 60s. The problem is what happens if they live to be 103 -- your money has to last.

"Again, don't be spooked by the headlines," Weber says. "I just read a story about how the stock market has gone up for six calendar years in a row after the 2008-2009 crash. Half of the experts were saying get out of the market and stay out for years. Don't listen to the experts. They don't know any more than you know."

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