Five money management mistakes

Managing your investments can be dizzying, and there’s lots of hard-to-ignore noise on the periphery.

Peruse the paper, surf the Internet or turn on your TV, and you’ll be bombarded with gut-wrenching financial news and “can’t-miss opportunities” that inevitably work their way into decisions you make on your investment portfolio.

Truth be told, I’m surrounded by money managers and money news, and sometimes I wonder, “What’s the right move?” And that’s with 20 years of experience in personal finance. There’s no doubt about it – managing your investments can be perilous, with plenty of opportunities to make a bad move. With the accuracy of hindsight on my side, here are five common mistakes I’ve seen people make in this area:

Timing instead of “time in.” Buy low, sell high. Sounds easy enough, right? But the reality is far different. At the beginning of 2013, a budget crisis, a pending government shutdown and a long-running bull market could have easily led investors to jump out of stocks. A correction was surely imminent. Oops – U.S. stocks surged more than 30 percent. The lesson? Don’t try to time the market. Among the challenges you’ll face is the need to make two decisions: when to get out and when to get back in. Can you get them both right? If so, can you do it more than once? Probably not. Let your long-term money work for the long term.

Picking off the top of the list. It’s way too easy to look at last year’s winners and choose to jump on the bandwagon by shifting your money to whatever did the best. Don’t do it! Remember, the rule is buy low, sell high. Maybe last year’s winner will go even higher – or maybe it won’t. Typically, you’ll arrive at the party just in time for a big disappointment. Chasing last year’s return isn’t really an investment strategy.

Hankering for a home run. In 2013, if you owned Rite Aid stock, you would have seen a healthy 272 percent return. If you had bet on the gold-mining stock of Newmont Mining, you would have lost nearly half your investment. The point? For most people, broad-based mutual fund or exchange-traded fund investments make more sense than swinging for the fences ... with the risk of striking out.

Believing more is better. Everything in moderation. It’s a saying that works well in many aspects of life, and investing is no exception. Some gold, commodities or real estate might be a nice addition to your portfolio. However, like cayenne pepper in your favorite recipe, more is not necessarily better. A diversified portfolio should contain a mix of different investments, but not wild bets on the latest trend.

Following the headlines. Today’s 24-hour news cycle makes it difficult to focus on your long-term goals. But overhauling or overturning your plan for the next quarter-century based on the latest and loudest talking head’s thoughts (which won’t match next week’s rant) is not a solid portfolio management model. Follow the news, but don’t let it run you in circles.

Are you guilty of these missteps? Hopefully not. But if you feel any of them creeping in, bust out your long-term plan and your noise-canceling headphones. Like it or not, the investment world will always be a loud one. The key is to block out the extraneous noise and tune in to the goals you’re trying to achieve.

J.J. Montanaro is a certified financial planner for USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional. USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. USAA Financial Planning Services® refers to financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner TM in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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