Today’s Two-Minute Retirement Solution focuses on the costs of fear-driven decision-making when it comes to your retirement portfolio. When most small investors feel the pinch, they chase last year’s winners instead of making smart decisions today.

Unfortunately, this approach does more harm than good.

[ad#Google Adsense 336×280-IA]Normal financial anxieties are tough enough when we’re still working, but once we retire, they can ramp up significantly – and for good reason.

Most of the increased anxiety is due to fear… the fear of not having enough money to pay our bills or, worse, losing money we can’t replace.

A common response to this type of fear is to chase winners, like last year’s big mutual fund winners, with the hope of trying to capture some kind of return.

Even though decades’ worth of evidence shows that chasing last year’s winners is a way to guarantee losses, the small investor still tries to make up for a bad year by following the leaders.

And, to make matters worse, losing behavior has been driven to extremes by the near-zero interest rate market we’ve experienced for almost eight years. In every direction, people are swinging for the fences and trying to come up with any kind of yield. But I assure you, this will not end well.

When you consider how badly active fund managers have been doing, it amazes me that anyone looks to them for help.

This year, for example, only one in five (20%) active fund managers is beating the indexes. And when you remove July (the best month this year) from those numbers, it drops to just 14%.

So, funds are delivering another terrible year, and the little guy (who has enough trouble making money in booming markets) is trying to improve his lot by chasing last year’s winners in an industry where 80% of fund managers can’t meet or beat the S&P 500.

It just doesn’t add up! No wonder financial anxiety is off the charts.

This tragedy is particularly painful for me to watch. When I worked as a broker, I was a huge supporter of funds as a sound (and relatively safe) vehicle of growth for my retired clients… and it worked back then.

But thanks to losing track records and increasing expenses, I’m sorry to say that the industry is so far off track, I can’t recommend funds anymore.

Instead, I think it’s best to use sound, time-proven approaches to managing your money in retirement. Big blue chip dividend payers with a history of paying and increasing dividends, high-quality corporate bonds, utilities companies, annuities and even REITs are all viable alternatives.

But active funds are not part of this group… and chasing last year’s winner will make for a bigger loser now than ever.

Don’t let yourself be taken advantage of again. At the very least, sit tight. Believe it or not, unless something catastrophic happens to a fund, you actually increase your chances of making money by doing nothing.

Good investing,

Steve

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Source: Wealthy Retirement