Your Biggest Investing Risk Isn’t the Market. It’s Your Own Decisions.
Yogesh Prasad, CFA, CAIA
Advisor, Confluent Asset Management
Market volatility gets most of the attention when investors think about risk. Headlines warn about recessions, inflation, interest rates, elections, geopolitical events, and the latest market selloff. But for many long-term investors, one of the biggest investing risks isn’t something happening in the market. It’s what you do because of what’s happening in the market.
When your retirement savings drop, it’s natural to feel uncomfortable. You may check your portfolio more often, read more financial news, or start wondering whether moving some money to cash would be safer. The problem is that a decision that feels safe today can have a significant impact on your long-term financial plan.
The Cost of Making an Emotional Investment Decision
Consider a simplified example. Suppose you have $50,000 invested for a long-term goal and decide to move it into cash because you’re concerned about the market. If that $50,000 were to earn an average annual return of 8% over the next nine years, it could grow to roughly $100,000 before taxes and fees. If the same money earned 4% annually instead, it would grow to approximately $71,000.
That’s a difference of nearly $30,000.
Of course, investment returns aren’t guaranteed, and markets don’t produce the same return every year. The example simply illustrates an important principle: the opportunity cost of leaving the market can become significant when you have a long investment horizon. For someone saving for retirement, that opportunity cost matters.
The goal isn’t to ignore risk or pretend markets will always rise. The goal is to build an investment strategy that accounts for risk without allowing short-term emotions to derail long-term objectives.
Is Your Investment Strategy Built for Your Retirement Timeline?
Market volatility is only one part of the equation. Your investment strategy also needs to account for when you plan to retire, how much you’ve saved, and the income you’ll need when you get there.
If you’re not sure whether your current portfolio is positioned to support your retirement goals, Confluent’s Retirement Calculator can help you get a clearer picture.
The 7 Biggest Investing Mistakes That Can Hurt Long-Term Investors
Many investment mistakes look different on the surface. But underneath them is often the same problem: making a permanent financial decision based on a temporary emotion. Here are seven of the most common ways that happens.
1. Waiting for the Market to Feel Certain
There is always a reason to wait. Markets are dealing with inflation. Interest rates may be changing. The economy could be slowing. A geopolitical event could create uncertainty. Stocks may appear expensive. The list never ends. The problem is that certainty rarely arrives before the market moves. Investors who wait for everything to look safe can end up sitting on the sidelines while markets recover. Trying to determine the exact moment when uncertainty disappears is essentially an attempt to time the market. For long-term investors, a better approach is generally to establish an investment strategy based on your goals, time horizon, risk tolerance, and financial situation rather than waiting for the headlines to become comfortable.
2. Selling Investments During a Market Decline
Selling during a downturn can feel like you’re taking control of the situation. But selling creates another decision: When will you get back in? This is where market timing becomes particularly difficult. Markets can recover quickly, and some of the strongest market days have occurred during periods of significant uncertainty. An investor who sells after a decline and waits for conditions to feel safer may end up buying back at higher prices. For retirement investors, this can be especially damaging because a portfolio may need to compound for decades. Instead of making decisions during a stressful market event, consider establishing rules for how your portfolio should be managed before volatility occurs.
3. Assuming Stocks Are "Too Expensive"
Another common investing mistake is believing that rising prices automatically mean it’s time to get out. Valuations matter. They are an important part of understanding expected returns and portfolio risk. But valuation alone doesn’t tell you exactly when a market will decline—or when it will rise again.
A market can remain expensive longer than an investor expects. Likewise, an inexpensive market can become even cheaper before eventually recovering. Rather than using one metric as a signal to abandon an investment strategy, investors should consider the broader picture, including earnings, interest rates, economic conditions, portfolio construction, and their own time horizon.
4. Keeping Too Much Money in Cash
Cash has an important role in a financial plan. Emergency savings, near-term spending needs, and certain short-term goals generally shouldn’t depend on stock market performance. The problem occurs when investors begin treating cash as a long-term investment strategy. If retirement is 10, 15, or 20 years away, keeping too much of your portfolio in lower-return assets may create another form of risk: not growing enough to keep pace with your future financial needs. The right balance between growth assets, defensive investments, and cash depends on the individual investor and the purpose of the money.
5. Chasing Whatever Investment Is Winning
Every market cycle has its favorite investment. One year it may be technology. Another year it may be energy, emerging markets, small-cap stocks, or a particular investment theme. When an investment has performed exceptionally well, it’s tempting to assume that the trend will continue. But yesterday’s winner isn’t automatically tomorrow’s winner. Concentrating too much of a portfolio in one company, sector, theme, or investment can create significant downside risk if conditions change. That’s why diversification and thoughtful portfolio construction remain important components of a long-term investment strategy.
6. Ignoring the Tax Impact of Investment Decisions
Investment returns are important. But what you actually keep after taxes matters, too. Tax considerations can affect how and when investors buy, sell, rebalance, and withdraw from their portfolios. For investors with taxable accounts, strategies such as tax-loss harvesting may help manage the tax consequences of investment losses and gains when appropriate. Taxes can also become increasingly important as retirement approaches. Withdrawals from different account types can have different tax consequences, which means investment management shouldn’t necessarily stop at choosing which stocks or funds to own. A comprehensive retirement strategy should consider both investment returns and after-tax outcomes.
7. Having a Retirement Goal Without a Retirement Investment Plan
“Save for retirement” is a goal. It isn’t a complete investment plan. A retirement plan should answer more specific questions:
- How much will you need to retire?
- When do you want to retire?
- How much are you currently saving?
- What rate of return is reasonable to plan around?
- How much investment risk can your portfolio withstand?
- How should your portfolio change as retirement approaches?
- How will you generate income once you stop working?
- What role will Social Security, taxes, and other income sources play?
- What happens if the market experiences a major decline shortly before retirement?
Without answers to these questions, it’s easy to become reactive. The market goes down, and you sell. The market goes up, and you buy. A headline predicts a recession, and you change your allocation. Another headline predicts a boom, and you change it again. That’s not necessarily an investment strategy. It’s a reaction to the news cycle.
The Real Risk of Emotional Investing
Market risk is real. Stocks can decline. Recessions happen. Interest rates change. Companies fail. Even diversified portfolios can experience significant temporary losses. But investors also have behavioral risk. Behavioral risk is the possibility that fear, overconfidence, FOMO, recency bias, or other emotions cause you to make decisions that don’t align with your long-term financial objectives. And unlike market volatility, behavioral risk is something you can potentially address through better planning. The answer isn’t to stop paying attention to your portfolio. It’s to create a strategy that gives you a framework for what to do before the next major market event occurs.
Your Portfolio Should Have a Purpose
One of the most important questions an investor can ask isn’t simply, “How is the market doing?”
It’s: “Is my portfolio still aligned with what I’m trying to accomplish?”
If you’re saving for retirement, your portfolio should be connected to your retirement timeline and income needs. If you’re already retired, your strategy may need to account for withdrawals, taxes, longevity, inflation, and the sequence in which different assets are used. That is why investment management shouldn’t be separated entirely from financial planning. At Confluent Asset Management, we believe portfolios should be built around the individual—not around a generic model portfolio.
Our approach combines active investment management, customized portfolio strategies, and a fiduciary relationship designed to keep your investments connected to your broader financial objectives.
Don't Let a Bad Night Become a Bad Financial Decision
The next time you find yourself checking your portfolio late at night after a market drop, pause before making a major change. Ask yourself: Am I responding to a temporary market event, or am I making a decision based on my long-term financial plan?
If you don’t have a clear answer, that may be a sign that your investment strategy needs more structure. For investors approaching retirement, the stakes can be particularly high. A decision made during one difficult market environment can affect your ability to generate income and maintain your lifestyle years later. The objective isn’t to predict every market move. It’s to have a thoughtful investment strategy that helps you stay focused on the financial goals that matter most.
See Where Your Retirement Plan Stands
If you’re wondering whether your current savings and investment strategy are on track for the retirement you want, start with Confluent’s Retirement Calculator.
It can help you evaluate your current position and identify whether your existing strategy may leave you with a potential income gap in retirement.
If you’d rather talk through your situation with an advisor, schedule a retirement consultation with Confluent Asset Management and take a closer look at your investment strategy, retirement timeline, and long-term goals.
Disclaimer
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