We recently asked financial experts from across the nation to list the most common investing mistakes made by individual trustees, 401k plan sponsors and regular investors. What we found could be lumped into three distinct and recognizable categories (see "Experts: 3 Common Investor Mistakes All Retail and 401k Investors Should Avoid"). As we dug into the responses, however, we couldn't help but notice one dastardly word lurking in the shadows of each of these mistakes. That word is "emotion."
It's easy to view the world of investing as the antiseptic tango between forthright data and agnostic formulae played out in the sterile cells of a dispassionate spreadsheet. But the reality differs from this fantasy. Even professionals, more often unduly influenced by the very clients they supposedly advise, can succumb to the evil temptress of the irrational. And if trained specialists need to constantly guard against this seduction, imagine the vulnerability of those bereft of such training.
Worse, imagine having this same lack of expertise yet still carrying the same burden of fiduciary liability as the expert. This, alas, spells the unfortunate plight of the ERISA plan sponsor. With no formal investment education and too busy to reliably undertake a self-taught curriculum, the DOL has nonetheless saddled plan sponsors with a fiduciary liability akin to that of the professional (although, as we explained last week, there are ways to mitigate that liability).
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
