Yuen Yung, CEO of Upside Avenue
It’s no secret that money is extremely important to men, especially with them feeling the pressure to provide a comfortable living for their households. However, managing money doesn’t always come naturally to all men. And, just like in any aspect of life, mistakes can and do happen.
According to a recent study from Go Banking Rates, some of those mistakes (like overspending or running up credit card debt) can be avoided if men were more cost-conscious when shopping (especially for big ticket items like cars). They could also be avoided if they were more willing to ask for help when they need it, whether talking to a financial advisor or seeking advice from a credit counselor.
Now, when it comes to investing, studies show that men are more risk tolerant than women, but sometimes their confidence causes them to invest before doing proper research. According to psychologists, men tend to be overconfident sometimes about finances as compared to women, and, are more susceptible to making errors in their investments.
The good news is, whatever missteps have been made, there are steps men can take to recover. Below are three common mistakes to avoid in order to build wealth over time and protect yourself and your family from financial burden.
Making financial decisions without your spouse
Having one spouse making all of the financial decisions without input from their partner is usually not wise. With this in mind, men should always take the time to meet with their wife about any major financial decision and to seek her counsel. This will ensure that her insights are considered as part of the final spending or savings decision.
Men should also work with their wives to come up with a co-management game plan for their finances. Co-managing will ensure that you are working together with your spouse to reach your financial goals, and that you don’t forget to make critical payments or lose track of spending as costs add up. By tapping into the organizational skills of their wives, men can better ensure that there is always a solid process in place for money management.
And, remember when it comes to investing, men tend to overestimate their investments, so it’s important to always consult with your spouse, along with a financial advisor, before making a big investing decision. Having input from a partner and an advisor can be the secret sauce to financial success.
Overtrading in the stock market
A Fidelity study found that men are 35% more likely to make trades than women, and, will make more frequent trades in an effort to boost their return. But men have to be careful to avoid excessive buying and trading of shares because it is one of the biggest mistakes investors can make. It’s often the product of fear and impulsiveness and can lead to a dangerous cycle of buying high and selling low.
“Markets cannot be timed consistently over the long term,” said Josh Womack, founder of Womack Financial, a financial advisory firm specializing in working with business owners to preserve and grow their wealth. “Attempting to do so is not only unnecessarily risky, but is also likely to increase your tax burden and increase trading fees – both of which are counterproductive to building and/or protecting long-term wealth.”
One study found that the average annual return for a household during a certain period was 16.4 percent, but those that traded the most averaged 11.4 percent. The S&P 500 had returned 17.9 percent on average over the same period. It goes to show that overtrading can be a costly mistake. It also shows that buy-and-hold investors who stay the course are more likely to win financially.
But this is not to say you should only seek out conservative investments. Building a sizable portfolio requires taking on some risk. The key here is deciding on an approach and sticking to it, no matter what the markets do. More often than not, short-term financial hiccups in the market are only just ‘noise’. Overreacting to this “noise” may lead to an impulsive move that could cost you later on.
So, while taking on risk to build a portfolio is important, trust the plan and resist the urge to bail.
Not diversifying your investments
Most people’s income comes from a day job. But what if tomorrow, that job is gone? While, this is a concern for most working adults, men can especially feel this pressure as many families depend heavily on then to provide.
The key to protecting your financial health is through diversification, which involves establishing revenue streams that are independent of each other. This doesn’t mean you should find a second job. In fact, the easiest way to create a new stream is by investing in income-generating vehicles. This can serve as both a backup plan and a wealth-building tool.
Real estate, for example, has long been known to provide investors with a steady and lasting cash flow. According to Morgan Stanley’s 2014 Millionaire Investor Survey, among investors with investable assets over $1 million, 35 percent of their portfolios were allocated to private real estate.
For decades, private real estate investments were only accessible by accredited investors, had high minimum investments, were not adequately diversified, and often lacked transparency, liquidity and reporting. These factors often caused investors to shy away from these products, even with their potential for higher risk-adjusted returns.
But that’s no longer the case, new regulatory changes have allowed for the formation of public non-traded REITs which are giving investors more access to diversified portfolios of real estate at lower minimums. Upside Avenue, for instance, has a minimum investment of only $2,000.
Now, with investment minimums being lower on quality real estate deals, men of all social classes can have more access to opportunities that can drive real sustainable income for present financial needs as well as over the long haul.
By following these simple steps, men can not only avoid making financial missteps, but also take advantage of solutions that can grow and enhance their money management skills. This will allow them to enjoy greater financial success today and for years to come.
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