Common Financial Planning Mistakes #2: Reaching for Income

In our top financial planning mistakes series, CEO Michael Conway of Conway Wealth Group discusses why investors should avoid building portfolios solely based on bond income.


Speaker 1: Hi, everyone. What’s next on our list of the top seven financial planning mistakes?

At number two, reaching for income. Reaching for income. Many investors like the idea of living off of fund income rather than the potential appreciation of a portfolio. That’s because of an inherent human bias called mental accounting. It’s the same reason Blackjack players would rather bet with their winnings than the money they brought to the casino. These investors don’t realize that reaching for income creates exposure to risk in various segments of the economy.

Portfolios heavily invested in bonds miss out on growth assets like stocks, meaning the portfolio is less likely to grow over time. Educate yourself or seek guidance in understanding all aspects of investment risk. At a minimum, remember to not just build a portfolio around income needs. The portfolio must always reflect your goals, time horizon, and risk tolerance.