• Failure to have realistic expectations. While some segments of the stock market generated returns of 20 percent per year during the late 1990s, this is not "normal" if you extend your time horizon back over the past half century. Large company stocks have averaged close to 11 percent per year over longer time periods. This is a long-term average — some years will be much better and others much worse.

• Failure to set appropriate levels of risk. Your "time horizon" is the length of time remaining before you will need to begin drawing on your investments for living expenses. The longer your time horizon, the more risk you can take. It is important to understand that someone in his or her mid-40s today is 20 years away from retiring. Even then, most couples will be depending on their retirement assets to meet their financial needs for an additional 20 years. That translates into a 40-year time horizon, which means you can afford to take significant market risk.

• Failure to diversify adequately. Employer stock purchase plans, super star mutual funds or stocks, and a lack of understanding have led many an investor into a position of having all (or most) of his or her eggs in a single basket. You must diversify in a manner consistent with your objectives. Some studies indicate that over 90 percent of your long-term investment performance is driven by your diversification and asset allocation decisions, so be careful to avoid looking only at return.

• Failure to seek competent, objective counsel. Our society promotes the need for expertise, then chastises those that seek to use it. We are told that seeking help is a sign of weakness. If one is ill, he or she quickly seeks medical assistance. When our automobile doesn't run, we quickly seek out a good mechanic. Yet when it comes to our financial present and future, we often try to do it all ourselves.

• Failure to begin. Procrastination turns attainable goals into impossible ones. The longer we wait to establish meaningful personal goals and implement a realistic plan to accomplish them, the greater the difficulty we will have achieving success. The best time to start was yesterday, but today is better than tomorrow.

 © Sound Mind Investing

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