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Are you a self-directed investor? If so, are you completely satisfied with the current performance of your investments? Or, have you struggled to consistently meet your investment goals over time? Chances are, you feel some level of improvement can be made. We all typically seek the same general objective: to maximize our returns while, at the same time, protecting ourselves from downside risk. However, for many, it is becoming increasingly difficult to reach this objective as they are flooded with more information and faced with more investment alternatives. Ultimately, the landscape has become more complex.Fortunately, many investing fundamentals have remained unchanged. Through more than thirty years of managing money for many prestigious institutions and individuals, I have learned some important lessons on what brings success — and what can lead to failure. Through this guide, it is my objective to help investors recognize these common mistakes — and provide insight on how you can avoid them. I’m confident the guide can help you increase your chances of reaching your investment goals.Mistake #1: Underestimating the time horizon for your assetsHow long do you think you’ll live? How about your spouse? Most people are far too conservative in estimating the length of their lives, and that can be a problem when planning your financial future....and how to avoid it. It's a simple fact. Breakthroughs in medicine happen so often, yet we frequently don’t even hear about them. As progress has occured in the effectiveness of disease treatment, improvement in general nutrition and higher standards of living, most people now live longer than they think they will.This means there are new and costly healthcare methods now available for increasing life span as the population ages, which raises the costs of healthcare and of living longer.For these reasons, we find that most people estimate on the low side when it comes to how long they’ll live. As a result, many fail to implement financial plans to accommodate their longer lifespan. Many today run the risk of depleting their funds long before their lives are over.It’s important to have a sound financial strategy, one that will provide for your financial stability and income needs throughout your entire life. Sound financial planning is equally important for those whose goals are to grow their assets so they can pass an inheritance on to loved ones and family members who survive them. In either case, a realistic life expectancy time horizon is vitally important.Mistake #2: Misaligning investment objectives and portfolio strategyAligning your portfolio strategy with your objectives is a critical factor in determining long-term investing success. This may sound obvious, but many investors actually employ strategies that work against their objectives....and how to avoid it.A common error investors make is improperly judging risk. Generally, the longer the time-horizon of your investments, the more risk you’re able to take on. However, a typical mistake that investors make is to take on too little risk. That's right. They focus on short-term volatility rather than, more properly, the long-term probabilities of achieving their objectives. The result tends to be portfolios that underperform their goals. For example, some persistently load up their portfolios with low coupon Treasury bonds, due to fear that stocks will drop in the short-term. Then, they often barely generate a return that’s over the rate of inflation. This reduces the odds of achieving a long-term goal of growth– especially if withdrawals are also anticipated. Conversely, those with short-time horizon objectives are often overly exposed to risk, which creates a danger of asset loss during a short-term period of volatility. This can put their entire financial future in jeopardy.Mistake #3: Confusing income needs with cash flow needsIncome and cash flow are not the same thing, even though many investors think they are. In fact, the two different concepts, and the distinctions between them, are extremely important.�...and how to avoid it.Put simply, cash flow is how much money you need for living expenses and other personal uses of cash. Income, on the other hand, is the amount of dividends and interest earned by a portfolio that, in the case of a taxable account, you will pay current income taxes on.�
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