during retirement. You’ll have the funds to handle something potentially catastrophic occurs like job loss or illness. The key is to build up your savings before you start to invest. You shouldn’t invest money you need to meet other responsibilities.
There’s a natural human tendency to want to overreach, put in more money than you can afford, and go for a huge payout. This trait tends to become magnified in the face of losses. This is referred to as the sunk cost fallacy—the belief that you’ve invested too much to walk away. Rather than selling in the face of losses, someone might hold on to a stock that’s underperforming or, worse, buy more.You can’t just look at your portfolio as the stocks you own.
You can avoid the pitfalls of what’s called “the refrigerator problem” by keeping your eyes on the big picture. The same folks who spend weeks studying Consumer Reports ratings for a new stove or refrigerator will sometimes put all their savings into a stock or other investment they don’t entirely understand. Investments can be complicated, and a good financial plan includes factors like your retirement plans and goals, your other financial goals, and your risk tolerance.
When deciding how to invest in your portfolio, your first goal should always be to avoid major losses. You can do this through patience, keeping your management costs low, and seeking the advice of qualified, well-regarded advisors.