I bet if I asked what you think is the number one risk to your portfolio, the answer would be about market downturns hurting your potential returns. And that is a good guess. After all, it takes a long time to recover from downturns, and if you happen to retire or begin drawing from your portfolio during one, any chance of recovery is lost.
But the risk of declines isn’t the only issue facing your retirement portfolio. Three other hazards could have a much more detrimental effect on your portfolio and its long-term gains. For investors, both understanding and avoiding them is critical.
Stop Market Timing
One of the best quotes on market timing (or the act of moving in and out of the market during corrections) comes from financial blogger Josh Brown: “You make a few good trades and suddenly, you think you’re David Tepper.” The reality is, you’re not as good as David Tepper. For market timing to pay off, an investor has to be correct two times for each market move. Jumping in and out of stocks is actually a bad thing because most investors can’t get it right, even by a long shot. The end result is usually buying high and selling low.