Are You Wearing Blinders That Could Spoil Your Financial Decisions? – Kiplinger’s Personal Finance

Attend a horse race — perhaps at Santa Anita, Keeneland or Churchill Downs — and you will see some horses wearing blinders as they gallop down the track.

Those blinders keep the horses focused on what’s in front of them, allowing them to ignore anything that could distract from their primary goal — crossing the finish line ahead of the other horses.

One thing I’ve learned over my decades as a financial professional is that sometimes investors also wear blinders. Unfortunately, it’s not as beneficial for them as it is for a horse drawing cheers as it streaks down the final stretch.

In the case of investors, blinders blocking the view of the broader picture can prove costly. Here’s what I mean: Sometimes people see something in the news and they become focused on the ramifications — or perceived ramifications — of that one issue, making rash investment decisions as a result. They are blind to everything else. Right now, the issue that causes investors to don blinders could be the war in Ukraine. Or inflation. Or the supply chain. Or COVID.

But six months from now, a year from now — definitely at some point — these issues will fade and a whole new set will emerge. And for many people, it will be the same thing all over again as they become fixated on an event and let it affect their investment judgment and strategy.

When it comes to your financial plan, it’s important to take off those blinders so that you can remain disciplined and make decisions based on reason rather than emotion. This doesn’t mean you never make adjustments to your investment strategy. But it does mean that you think through those changes carefully.

To stay disciplined and keep yourself on track, here are seven areas you should address regularly:

1. Risk: Take the appropriate amount

Are you taking too much risk, putting your life savings in a precarious situation? Or could you be taking too little risk, missing out on opportunities to grow your portfolio? It’s important to assess how much risk you are taking with your investments and whether that risk is appropriate for your age, your needs and your goals.

2. Taxation: Think ahead

Are your investments unnecessarily creating additional tax liabilities for you? And what could tax rates be in the future when you start taking money out of your retirement accounts? People often assume their tax rates will go down when they retire, but that’s not necessarily so. Also, if a large portion of your retirement savings is in tax-deferred accounts, you will be paying taxes in retirement whenever you make a …….


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