We all have areas where we’re not as aware as we should be — blind spots that can unknowingly steer us off course. Money blind spots aren’t always obvious, but they can significantly impact your financial well-being. The key is to recognize these blind spots and take proactive steps to address them to keep them from throwing you off course.
5 Common Financial Blind Spots
Overconfidence in Your Portfolio
It’s easy to fall into the trap of believing that your investment portfolio is rock solid, especially during a bull market. Overconfidence can lead to a lack of diversification, ignoring risks, or not rebalancing your portfolio regularly. The markets are unpredictable, and overconfidence can be a dangerous blind spot.
According to a study by Dalbar, the average investor underperforms the market by about 1.5% annually due to emotional decisions and overconfidence.
Underestimating Expenses in Retirement
Many people focus on building their retirement nest egg without giving enough thought to what their expenses will look like in retirement. This can lead to a rude awakening when retirement income doesn’t stretch as far as anticipated.
The Employee Benefit Research Institute found that 57% of retirees say they have more expenses than expected.
Ignoring Inflation
Inflation might seem like a slow-moving issue, but over time, it can significantly erode your purchasing power. Not accounting for inflation in your long-term planning is a common blind spot that can impact your ability to meet future financial goals.
Did you know that the average annual inflation rate in the US over the past 30 years has been about 2.28%? Small changes, over time, can add up.
Neglecting Estate Planning
Estate planning is not just for the wealthy; it’s an essential part of any comprehensive financial plan. Failing to address this can leave your loved ones with unnecessary stress and financial burden.
According to a 2024 survey by Caring.com, only 32% of Americans have a will. That means more than two-thirds are flying blind.
Related: 5 Things You May Not Know About Estate Planning
Emotional Investing
We’re all human, and it’s natural to have emotional reactions to market fluctuations. However, making investment decisions based on emotions rather than a well-thought-out strategy is a blind spot that can lead to poor financial outcomes.
Studies show that investors who react to market noise and fluctuations are more likely to underperform compared to those who stay disciplined with a long-term strategy.
How to Manage and Overcome Financial Blind Spots
Work with a Trusted Financial Advisor
Sometimes, we’re too close to our own financial situation to see the blind spots. Working with a trusted financial advisor can help provide an objective perspective and identify areas that need attention.
Related: Are You Working With a Trusted Advisor Or a Salesperson?
Regular Financial Checkups
Just as you visit a doctor for regular health checkups, you should review your financial plan regularly. Life changes, and so should your financial strategy. Regular check-ins can help you catch any blind spots before they become problematic.
Diversify and Rebalance
Avoid the overconfidence trap by ensuring your portfolio is diversified and regularly rebalanced. This can help manage risk and keep your investments aligned with your goals.
Plan for Inflation
Include inflation in your long-term financial projections. This ensures your future purchasing power is preserved and your financial goals remain attainable.
Don’t Neglect the “What Ifs”
Consider the unexpected — whether it’s a health crisis, a market downturn, or even death. Estate planning, emergency funds, and insurance are crucial tools to protect yourself and your loved ones from unforeseen circumstances.
Stay Educated and Objective
Keeping emotions out of your investment decisions is easier said than done, but staying informed and sticking to a strategy can help. Understand the psychology of investing and remind yourself of your long-term goals.
We all have financial blind spots, but they don’t have to jeopardize our financial success. By staying vigilant, working with a trusted advisor, and regularly reviewing your financial plan, you can identify and address these blind spots before they become obstacles. Remember, the goal is not just to build wealth, but to ensure that wealth can support your life’s goals now and in the future.