Today, reaching your financial goals (retirement, college education, new home, etc.) is more complex than before. The future performance of your portfolios may be lower, and tax laws are becoming more complex.
It is always a good reminder to see that the returns achieved by the average investor significantly underperformed every single asset class from which this investor’s portfolio may be composed of: $100,000 invested in 1996 by the average investor would have become $151,536 today. But $100,000 invested in 1996 in just the U.S. stock index (S&P 500) would have become $483,666 (that's $332,130 or 219% more!).
Building on this theme—and following 20 years of investment experience—here are 24 preventable tax and investment mistakes that advisors have seen. These mistakes can ruin your retirement planning and prevent you from reaching your dreams.
How Not to Financially Plan
1. Not diversifying your wealth.
2. Not understanding the risk in your portfolio.
3. Investing in tax-inefficient portfolios.
4. Doing nothing/failing to build a customized financial plan.
5. Not saving enough or saving too late.
6. Overlooking your advisor/broker fees.
7. Failing to rebalance your portfolio.
8. Not having a sufficient emergency cash reserve.
9. Being overconfident in your own abilities.
10. Chasing past performance.
11. Investing based on news or reacting to short-term returns.
12. Emotionally buying and/or selling.
13. Trying to time the market.
14. Selecting the wrong mutual fund.
15. Not taking into account the effect of inflation.
16. Buying what you don’t understand.
Specific Mistakes Made by Expatriates
17. Failure to report investment income from assets held outside the United States.
18. Failure to properly report foreign financial assets.
19. Failure to understand FATCA and the impact of investing in a non-U.S. account (fees, taxes, tax reporting, etc.).
20. Failure to analyze your portfolio's true exposure to currency risk and its impact on your wealth.
21. Failure to financially plan the move in or out of the U.S.
22. Failure to understand the link between un-excluded earned income and IRA contributions.
23. Failure to update your estate documents.
24. Failure to work with a competent tax accountant and financial advisor. (For related reading, see: Financial Planning: It's About More Than Money.)