In my 24 years as a financial advisor, I have seen people make many investment mistakes. Here is what I consider to be the top seven:
1. Poor Asset Allocation. Having a disciplined mix of investments–bonds, alternatives, real estate investment trusts, U.S. stocks, and international stocks—is the cornerstone of good investment portfolio design.
2. Trying To Time The Market. Some advisors tout their ability to get in and out of the market at the right time, but it can’t be done consistently.
3. Buying An Annuity. Financial salespeople have invented a myriad of arguments in favor of having you invest in an annuity, but the main reason they recommend them is that they pay hefty commissions.
4. Not Consulting Your Tax Advisor. You can “manage your tax bracket” by taking distributions late in the year up to the top of your federal tax bracket. Another trick is to have required minimum distributions from a retirement account payable directly to a charity. But if you don’t ask your tax person about these tactics, you’ll likely miss out.
5. Chasing High Flyers. Studies show that investors tend to buy securities that have recently done well, then sell them after they tank.
6. Too Many Accounts. I have seen people have as many as twelve old 401(k)’s. Keeping track of this many statements alone is a headache, not to mention the fact that it’s difficult to have a coordinated plan when you have too many accounts.
7. Overlapping Holdings. You may think you’re diversified if you have ABC Large Cap Fund and XYZ Large Cap Fund, for example, but they’re both likely to invest in the same stocks.
If you’re concerned that you may be making one or more of these common mistakes, you may wish to consult a fee-only Certified Financial Planner Professional™.