By The Financial Planning Association of Massachusetts

| 10.09.13 | 12:22 PM

The most common financial planning mistakes

Boston.com asked the members of the Financial Planning Association of Massachusetts to share mistakes they see their clients making over and over. Mistakes that they wish they could stop them from making. These are some of the worst they have seen. Next

Running from risk

Morningstar and others have often reported on the challenges investors face when they run from risk at the wrong time. We all have these impulses, wanting to embrace risk when

things are going well in the market and stocks are reaching new highs.

The opposite is true as well, we want to abandon investments when they are beaten down. Consumers are notorious for repeating the cycle of buying high and selling low. This partially explains why the average fund investors returns are so much lower than the stated returns of the funds themselves.

Another way that investors run from risk is not just by having lousy timing, but also by being inclined to shy away from higher volatility holdings and toward the more income producing assets as they move through retirement. This kind of running from risk looks

to be problematic in the years ahead. Being over 12 years into a secular bear market, brighter days seem not far off. Similarly, with bond interest rates near their long-term lows, interest rate risk looks to be looming large.

—J. Christopher Boyd, Asset Management Resources, LLC, Hyannis, Mass. 02601, 508-771-8900

Putting the cart before the horse

People make a conceptual error they wouldnt make in non-financial arenas. Imagine, for example, that you are taking a cross country trip by car. With which of the following choices would you be most concerned in order to judge the trip a success?

A. Averaging 30 miles per gallon

B. Driving 85 miles per hour on the highway

C. Arriving safely at all planned destinations on time.

Did you choose C? Few people would judge the trip solely in terms of either the operating costs or the exhilarating performance of the car. Yet people do exactly that with their finances when they regard their journey primarily as one of investment management rather than financial planning. They focus mainly on the costs of investing (low fund expenses, advisory fees, etc.) or they care most about performance (beating the market, beating their brother-in-law). An investing lifetime that succeeds on all those counts can still fail to get them where they want to go. Absent a detailed itinerary a financial plan there is no meaningful benchmark for judging progress.

--John F. Harrison, Aspire Financial Advisors, Inc. 275 Grove Street, Suite 2-400, Newton, Mass. 02466, 617-663-5764

Save more for retirement

If they had started early, with minimal discipline, this mistake could have been avoided. When people reach their 50s, they start to see retirement on the horizon. They envision stopping work, golfing, lounging on the beach, or just spending time their families. Unfortunately, most people have not saved nearly enough for retirement.

A recent survey by the Employee Benefit Research Institute revealed that 60 percent of baby boomers have less than $100,000 for retirement. In fact, 40 percent have saved less than $25,000. Forget the amount saved, this group dramatically underestimates what the retirement years will cost. The costs of leisure, living expenses, and health care are more costly than most realize. Throw in inflation and you have some real challenges. Social Security will not be enough. Early planning and disciplined savings makes this picture better.