5 warning signs you are in the wrong investments

December 11, 2014
Tim McNeely, CFP, CIMA
Tim McNeely, CFP, CIMA

Tim has spent his entire working life as a financial advisor but the only that that really matters is meeting his wife, Dana Yeoman D.D.S. In the process of joining lives together Tim learned what the life of a dentist is like. Seeing his wife's frustration with the complexity of running a dental practice he set out to make things simple. Since meeting his wife Tim has advised hundreds of dentists on wealth management issues that dentists face. Tim is CEO of LifeStone Wealth Management - An Dental Only Wealth Management Firm that works with a limited number of dentists for whom he can have a significant impact. He has also been recognized as a “Best Financial Advisors for Dentists” by Dental Products Report in 2013, 2014, 2015 and 2016. He and Dana enjoy exploring California’s wine country, a good single malt, and raising standard poodles. Tim can be reached at tim@lifestonewm.com or 855-FIN-XRAY (855-346-9729)

Do you ever wonder if you're really in the right investments? If so, you're not alone. Investing can be confusing. The ever-present risk of loss keeps many investors on edge. It's easy to question whether you're implementing the right strategy, whether you're getting the best advice, and whether you have your money in the investments that are best for you.

There's no clear and obvious answer to these questions. Each investor's situation is different, which means each investor has his or her own definition of right and wrong. There are, though, a handful of warning signs that could indicate that you're invested incorrectly. If any of these sound familiar, you may want to look at your investments with a critical eye and seriously question why you're in those assets.

Here are five warning signs that you could be in the wrong investments.

1. You're not beating inflation. It's okay to have a relatively low risk tolerance. Even though aggressive investments can offer higher long-term returns, they're not for everyone. There's nothing wrong with skewing conservative.

However, if you're not at least beating inflation, you may have a serious problem. You may not be losing value on paper, but you are losing value in terms of purchasing power. Inflation generally runs between 2-3% per year. If you're not getting at least that amount of return, you may be playing it too safe.

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2. You can't sleep at night. On the flip side, it's possible that you're too aggressive. It's always a good idea to maximize long-term return. However, if your portfolio is so volatile that it's causing stress in your life, you may be too aggressive.

The risk with being too aggressive is that you'll make a reactionary change to your portfolio and sell out of positions after a large downturn. Ideally, you want a portfolio that causes you little-to-no stress so you can stay invested through up and down markets. Staying invested and not reacting to short-term market events is often a good strategy to meet long-term investment goals.

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3. You don't understand how the investment works. Investing can be complex. Even the most common types of investments, like stocks, bonds, and mutual funds, can be hard to understand.

You don't need to be an investing expert, but you should have a basic understanding about how the assets in your portfolio work. How could they potentially increase in value? How could they potentially lose money? What are the risks involved?

If you don't know the answers to these questions, sit down with your advisor. It may just be a matter of education. If a conversation with your advisor doesn't clear things up, you may be invested in assets that are far too complex.

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4. The fees are excessive. Is your growth being eroded by sizable fees that seem to come out on every statement? Do you feel like the fees are restricting your ability to increase your assets? If so, you may want to talk to your advisor about the fees so you can better understand them.

It's normal for any investment to have fees. However, the fees should be in relation to the investment's complexity. Simple assets, like treasuries, tend to have lower fees than complex investments like emerging market funds or hedge funds. Also, it's normal for an advisor to charge a fee.

However, you should feel like you're getting value from the advisor and the investments. If you feel like the fees are excessive, you may want to look at other options.

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5. The earnings arent sufficient to meet your goals. Do you feel like your assets just aren't earning enough to meet your long-term goals? That could very well be true, especially if you're saving for a big goal like retirement.

When you're saving for retirement, it's not enough to just put money away. You also need to invest that money. If your money isn't earning fast enough, you may be invested too conservatively.

A financial advisor could run a financial plan to determine whether your current portfolio is allocated properly to meet your goals. In fact, an advisor could help you review all of these items. He or she could then recommend other types of investments that may be more suitable for your situation.