The Extreme Risks Of Trading Your Own Retirement Assets - March 24, 2020

Maybe you're a seasoned investor and have a good track record with stock-picking. And you may have a robust retirement portfolio - perhaps including some Zacks Top Retirement stock selections such as:

New Residential Investment (NRZ), PennyMac Mortgage (PMT) and Grupo Aeroportuario del Sureste (ASR).

If this sounds like you, then here's a question: With your background and skills, should you manage your own retirement investments?

It could be a good idea - that is, if you are one of the very few investors who understands your own risk tolerance and can keep your emotions in check during chaotic market swings. However, if you're like the rest of us, there are likely more prudent ways to reach your retirement investing goals.

That's because the risk - reward scenario and investing approach is completely different for long-term wealth building and active stock trading.

How Diversification Differs from Stock Picking

Picking individual stocks has the potential for huge returns - but also carries a lot of risk, which is particularly hazardous when investing for retirement.

In fact, a study done by Hendrik Bessembinder revealed that only 4% of equities produced all of the stock market's gains over the last 90 years. All other stocks "broke even" with the increases of 38% canceled out by the losses of the bottom 58%.

For even the most talented stock pickers, the odds for long-term success are slim.

Is Successful Investing a Mind Game?

Most people think they can make rational investment decisions, but research indicates the opposite is often true. Investors followed in a DALBAR study performed significantly worse than the S&P 500: For the 30 years between 1986 to 2015, the average investor earned just 3.66%, whereas the S&P 500 produced a 10.35% return.

It is worth noting that this period included the 1987 crash and enormous bear markets in 2000 and 2008, and the positively trending market of the 1990s as well.

This study indicates that one key explanation behind investor underperformance is attempting to time volatile markets - and that irrational emotional biases are likely to compound investor botches.

Curiously, even experienced traders tend to underperform since they can't resist the emotional urge to make impulsive investment choices. They might be overly self-assured and miscalculate risk, get attached to a price target, or perceive a pattern that does not exist. This behavioral fallacy, over the long-term, can be disastrous with potential underperformance of a huge number of dollars disrupting your retirement.

The Key Takeaway for Retirement Investors

When it comes to managing your assets for retirement, you must look at performance over the course of years and decades - not weeks or months. Because most traders generally tend to focus on the short term, they may not have the right mindset to achieve successful long-term outcomes.

We're not saying you should not trade at all - far from it. If you enjoy trading, perhaps you should put 10% of your investable assets to work in short-term investments to seek alpha and outsized returns.

But the bulk of your wealth - those assets earmarked for retirement - should be invested using a more measured, conservative, risk management approach to generate steady, compounded returns so you can safely reach your retirement goals.

Do You Know the Top 9 Retirement Investing Mistakes?

Whether you're planning to retire early or not, don't let investing mistakes derail your plans.

If you have $500,000 or more to invest and want to learn more, click the link to download our free report, 9 Retirement Mistakes that will Ruin Your Retirement.

This report will help you steer clear of the most common mistakes, like trying to time the market, lack of diversification in your portfolio, and many more. Get Your FREE Guide Now

New Residential Investment Corp. (NRZ): Free Stock Analysis Report

Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR): Free Stock Analysis Report

PennyMac Mortgage Investment Trust (PMT): Free Stock Analysis Report

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