Things that go bump in the night aren't the only frights retirees should fear this Halloween season; their retirement accounts might just scare the bejesus out of them.
That's especially true in the current environment, where inflation is rising, gas prices are elevated, and a U.S. mid-term election is around the corner. Short-term portfolio dips might be scary, but the true nightmares lie in these five hidden traps.
5 Spooky Retirement Investment Moves to Avoid
1. The monster you invited in
You may have heard this AI stock is the next Nvidia, or this option play using an upside-down multi-way spread trade (whatever that is) will make you rich; if you don't understand it and still invest in it, Brant Wong, head of retirement solutions at Principal Asset Management, says that is one of the scariest things an investor can do.
"With any retirement account, for any investor, there are always different investments, different returns, and risks," says Wong. "It's important to understand how these things work." If you don't, you might make mistakes, leading to buying high and selling low, which is what true portfolio horror stories are made of.
2. Zombie investments
If you've switched jobs over the years, or aren't completely on top of your finances, you may have one or more of these: zombie investment accounts. These are old 401(k) accounts, stocks you forget about, or the same investment in multiple ETFs or mutual funds. All of those zombie investments cost you money in fees, redundancy and lost growth. They can be downright frightening, says Patrick Marcinko, a financial adviser at Bogart Wealth.
"Here's an easy fix. At least once a year, look at everything you own and why you own it. If you can't explain why, it's worth looking at it," he said. "It's very important to have an inventory."
To get started, you could search for lost 401(k) accounts.
3. Panic and run
In horror movies, you want everyone to run for the exit or get away from the axe murderer. But doing that when markets are going south, especially when you have a plan, can lead to a bloodletting, warns Wong. Just look at what happened after the Great Recession in 2008 and 2009. Everyone who didn't sell recouped their losses and then some. History has proven that over and over.
"You may want to escape and get away, but with investments it's not that simple," said Wong. "There's risk mitigation, which is why it's important to understand the investment and to make moves to optimally derisk the portfolio." If you have a plan in place and the markets are dropping, don't react, warns Wong. Stick to the plan and ride out the fright show to live another day.
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4. Putting all your screams in one basket
Maybe you had stock options at your job, owned a stock that did well over the years, or, for whatever reason, one investment has taken on a life of its own and now represents a big chunk of your investment portfolio. If that rings true, you are committing what Jaime Quiros, CFP and Portfolio Manager at FBB Capital Partners, says is a grave mistake.
"Too much concentration can hurt you in a downturn or if something happens," he says. "Think about Enron, think about Lehman Brothers." Quiros was referring to two companies that collapsed, taking their share value along with them. "You don't want too much of one stock, especially in retirement," said Quiros.
5. Flying blind
One of the most haunting things any retiree can do that will doggedly follow them in retirement is to lack a financial plan. Without one, you may react when things go bad, which could create shortfalls later in life. "The scariest thing in retirement isn't a market drop," said Marcinko. "It's one you didn't plan for."
Avoiding the financial horror movie
Investing in retirement doesn't have to be scary and spooky this Halloween season. By making sure you have a plan, your investments aren't overconcentrated in one area and that you stay the course once you are on track, you can put all those ghouls, goblins and demons to bed once and for all.