Top Ten Investment Blunders #10 - Buying an Annuity in a Tax-Deferred AccountThe benefit of an annuity is that your money growstax- deferred. But any investment you put inside anIRA or 401(k) is automatically tax-deferred, so thereis no need to use an annuity inside of a plan thatalready gives you tax- free growth.
Top Ten Investment Blunders #9 – Losing Ground to InflationThis is one of the cardinal sins of investing. No onelikes to lose money, but investors who park the bulkof their assets in conservative investments, such asmoney markets, rather than expose their portfolioto the volatility of the stock market actually puttheir future in greater risk: the very real likelihoodthat their money will not grow at a pace that keepsup with inflation.
Top Ten Investment Blunders #8 - Thinking Indexing is a Low-Risk StrategyEven with dividends reinvested, the S&P 500declined 45% during the 2000 to 2002 bearmarket. It has only recently recovered fromthese losses.
Top Ten Investment Blunders #7 – Holding Overlapping PositionsOne word: Janus. When the tech bubble burst in2000, many who help Janus funds (and hadoverlapping positions) suffered huge losses.
Top Ten Investment Blunders #6 – Taking Unnecessary RisksWhen markets are rising, everyone wants to getinto the stock game. So rather than maintaininga diversified balance of holdings, many investorsloaded up on tech-heavy mutual funds and theirlosses were severe.
Top Ten Investment Blunders #5 – Letting Emotions Guide Your Investment DecisionsOne of the most difficult tasks for investors is tomanage their emotions. Letting emotions driveyour investment decisions can lead to baddecisions.
Top Ten Investment Blunders #4 – Chasing PerformanceChasing performance is especially risky whenyou try to make short-term gains in hot stocksectors. For example, if you jumped into oilstocks when they were performing best over thepast summer, you would have suffereddisproportionate losses during the fall.
Top Ten Investment Blunders #3 – Pennywise and Pound Foolish on FeesHigh expenses are a drag on performance butthe best of managers can overcome thatdisadvantage.
Top Ten Investment Blunders #2 – Ignoring Your Fund’s ManagerHigh expenses are a drag on performance butthe best of managers can overcome thatdisadvantage.
Top Ten Investment Blunders #1 – Unreasonable ExpectationsGood investment managers help their clientsestablish realistic expectations based on theirreturn requirements and risk tolerance.Beware of any adviser who promises significantlygreater returns than those historical averages. If itsounds too good to be true, it probably is.