“The Top 10 Mistakes Most Investors Make….
Why They’re Keeping You From Your Financial Dreams”

1. No written investment plan - Let’s say you live in Florida, and you were driving to Montana for a vacation. I would venture to say that the first thing you would do is look at a map and plan your route. You might even plan a few stops along the way to site see, and make a few hotel reservations in advance. Investing is no different.

A written investment plan is no guarantee for success, but studies have shown that investors who have written plans have a better chance for success than those who don’t. A written plan forces an investor to be disciplined and focused on a goal or destination. Like a roadmap on a trip, if you should go astray, a written plan will put you back on the right path.

2. Poor Diversification - Asset allocation seems to be the chorus screams from the brokerage firms today. You’re a little late to the party guys. Why didn't we didn’t hear these screams during the “Hey Days” of the NASDAQ bubble? The truth of the matter is, asset allocation has been around a long time. Could it be that greed clogged the ears, and judgement of investors during the late 1990’s?

Harry Markowitz won a Nobel Prize for his work on portfolio diversification through a study called the Modern Portfolio Theory or M.P.T. The basic premise of MPT is that a proper diversified portfolio can limit your risk and enhance your return. The longer the investor’s time frame, the less risk is involved, and vise versa. A portfolio properly allocated between cash, bonds and stock obviously has less risk than a portfolio in just stocks, bonds, or cash.

Investors need to identify their future financial goals, the time frame for achieving those goals, and the proper diversification.

3. Trusting brokers and their firms - The financial services industry is not a charity business. Whether you’re dealing with a bank, brokerage or insurance company, their first loyalty is to the shareholders and themselves. This is very obvious by the fees and commissions you are charged.

If you know what you’re doing, you can save a ton of money in investment costs. The more you save, the faster you will reach your financial goals. The more you know about the various products and services offered by a financial institution, the better off you’ll be. You do not need to let brokers, insurance companies, or brokerage firms tell you what’s in your best interest.

4. Taking tips from friends - Friends mean well, but often their enthusiasm is misguided and passed down. The lure of a hot tip plays on the gambling urge of many investors’, and “Hitting the big one” rarely pans out. Unfortunately, too many investors have to learn the hard way, and lose money. Since there are no safe shortcuts, investors need to realize that “Hot tips” have spelled doom for many investors.

5. Procrastination - Investors waiting for the right time to invest may be waiting an entire lifetime. Te reality is, there is no right time to invest. No one can predict future events, good or bad. No one rings a bell when a bear market ends, and by the time a new bull market is declared, it’s too late. Proper diversification can cure many forms of procrastination. But, the longer you wait, the longer it’s going to take to achieve your goals.

6. Taking too much risk - Some investors feel a lot of money in a few investments provide a greater return than a well-diversified portfolio. This is not the case if one of those “few” investments was Enron or WorldCom. In reality, no one knows they own an Enron or WorldCom until it’s too late. Even the rich oilman, J. Paul Getty, once said, “Put all your eggs in one basket, but watch the basket.” Since you and I do not own a couple of thousand oil wells, that philosophy does not apply.

People who speculate are forgetting about a precious commodity that we all share for only a while. Time. Time is on our side as investors, and against us as speculators.

7. Micro-managing your investments - One of the biggest mistakes investors make is being too “jumpy”. They jump from one investment to another because they do not receive instant gratification from their investments. These investors allow fear and greed to determine their next move. In the long run, this causes investors to sell too soon, and not buy something until it’s too late. A properly diversified portfolio with quality investments needs very little day-to-day management. True, the time will come when the percentages of a plan need adjusting, but this takes place as allocations become disproportionate, and not because an investment is temporarily out of favor.

8. Not enough funds for emergencies - From time to time, events occur in our lives that call for a change of plans. These events may involve being laid off, fired, death in the family, or a host of other reasons. Financial planning guides call for having cash reserves to meet any unforeseen events that may unfold. The usual recommendation is to have three months of pretax income reserves available at all times. My recommendation is to have six months of pretax income reserves at all times. The six months of reserves gives you enough time to make any necessary life adjustments without interrupting your long-term investment plan. Do this, and you’ll be able to handle almost anything that temporarily disrupts your life.

9. Believing financial publications - We’ve all stood in lines at the grocery store or WalMart and scanned the eye catching headlines on a Fortune or Money magazine. All too often, we are captivated by headlines like “The 10 Best Mutual Funds” or “The One Stock You Must Own Now.” More often than not, if you’re reading the headline, it’s too late. These headlines are cleverly worded to capture a person’s attention and to sell magazines.

It is been my experience that the funds and stocks touted in these publications severely under perform or drop like rocks over a period of twelve months. After reading one publication’s recommendation, I did a background check on the writer and found that the previous year he had written for “Rolling Stone”. Financial publications tend to write about investments that are “in favor”. Buying value is investing in quality when it’s out of favor.

10. Paying too much for investment services - It does not take a rocket scientist to know that the less you pay, the more you keep. Why should you pay a 5.75% upfront load on a fund when another fund with a similar track record charges you 1% or 0%? Why should you pay $100 for a stock transaction when you can pay $15.00? Keeping close tabs on what fees you are being charged can translate to a better return. Brokerages, banks, and insurance companies will not reveal the alternatives. I will.