Investing mistakes are common, even among the most successful investors, and small mistakes won’t cause much harm, especially if investors learn from them. But a commonly repeated mistake is an over-reliance on bonds, which could lead to serious financial consequences later down the road, contends an article in the Financial Times.
People tend to get hung up on near-future volatility, and make their portfolios more conservative as a result. That generally leads to a heavier weighting in bonds, which might work in the present, but be less than optimal in the future. Indeed, a long-term investor’s “greatest asset…is time,” the article maintains, since it will likely be many years before those assets will be converted into spending. Therefore, a mix of assets in the present could provide substantial returns in the long-term. For wealthy investors, the first step would be identifying all the parts of their total financial portfolio in addition to their securities portfolio, including inherited wealth, real estate, and the net present value of any future earnings, savings, and social security. That latter item is often overlooked, because investors generally don’t view their income streams in a long-term, “lump-sum asset” kind of way. And that value could be significant, especially for higher earners. Determining a realistic estimate of their total financial value would be a smart thing for those investors to do, because while real estate and social security might remain relatively stable in value, the picture might be different when equities are factored in. Many investors place their focus on securities, and might think they hold a majority in equities, but in actuality their equity investments might be far less than they think when all of the elements in their total financial portfolio are factored in. In that case, the investor would be better off investing more of their money into equities.
Likewise, those that can live off the income from their investments should “commit substantially to equities,” the article advises, because dividend payouts tend to be very consistent and stable in their gradual increases. Rather than start investing on a wrong path and remain too conservative for too long, investors would be wiser to look at the big picture and be more adventurous now in order to live out a brighter future.
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