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Across My Desk

Now that you've got a sense of what types of mistakes fund investors make, what follows are some things to watch out for when it comes to investing in general.

"As the financial markets remain unsettled, investors who are without long-term financial plans are making the same five costly errors over and over again, according to a warning issued today by three leading U.S. investment advisors. The firms - Carlson Capital Management, Inc., of Northfield and Minneapolis, MN., Plancorp, Inc., St. Louis, MO., and Savant Capital Management, Inc. of Rockford, IL. -- are members of the Zero Alpha Group (ZAG), a nationwide network of eight fee-only investment advisory firms (www.zeroalphagroup.com) that manage more than $3.5 billion in assets.

Justin D. Stets, principal, Carlson Capital Management, Inc., Minneapolis, MN., said: "Uncertainty and confusion are the No. 1 enemies of the investor who operates blindly and without the benefit of a long-term plan. When you are trying to read uncertain market signals every day and end up jumping erratically from one hot trend or product to another, the only thing that is likely is that you will end up worse off than when you started. We want to encourage investors who are grasping at straws today take a deep breath, calm down and get focused on a real plan."

The five most common investor mistakes highlighted by the three financial experts include: chasing returns on foreign investments and ignoring domestic opportunities; taking a short-term view of tax avoidance; over-concentrating in real estate; treating "hot" investment alternatives (such as hedge funds and private equity funds) as though they are asset classes; and ignoring the full costs of owning certain investment products, such as a stock fund inside an annuity.


  1. Giving short shrift to U.S. small and growth opportunities by chasing returns to exotic foreign destinations. Because they have been hot for the last three years, international investments are now dangerously overloaded in the portfolios of many investors.

  2. Rushing into real estate (often on a local and undiversified basis) in exactly the same way that people stampeded into tech stocks in the 1990s. Thomas A. Muldowney, managing director, Savant Capital Management, Inc. of Rockford, IL., said: "Real estate is to investing in 2005 what tech stocks were to investing in the middle and late 1990s. And I say that even though much of the talk you hear today about a possible real estate bubble may be overstating the danger to investors. But the reality is that it won't take much of a correction in real estate prices to put investors who are over-concentrated there into an extremely painful bind. Real estate is fine as part of most investment portfolios, but if it throws off your overall diversification, you are setting yourself up for a fall."

  3. Treating "hot" investment alternatives (e.g. hedge funds or private equity accounts) as though they are asset classes - when they are not. Though this is a perennial problem for "plan-free" investors who latch on to whatever is being talked up in the news media and among colleagues, two of the most-discussed products of today - hedge funds and private equity accounts - are, in many ways, even more volatile and less liquid than the "hot" products of previous years.

  4. Taking a counterproductive, short-term view of tax avoidance. For example, investors buy annuities in order to defer taxes and succeed in doing so. But such an approach also converts any gains (which are usually taxed at the 15 percent long-term capital gain tax rates) so that they are taxable at up to 35 percent ordinary income rates. The annuities were sold to the client when the individual in question was early in their accumulation years and now they find out that at retirement, they are facing the same tax obligation. The drawbacks are several for individuals in this situation: (1) they are still in the highest tax bracket; (2) they may increase the tax owed on their Social Security income; (3) if they don't touch the annuity, they disinherit themselves; and (4) their children will end up paying the taxes after their death.

  5. Ignoring the costs of owning an investment - and paying a real price for doing so. Jeff Buckner, president, Plancorp, Inc., St. Louis, MO., said: "In a market that is going up fast, investment costs can seem almost 'pain free.' But every little bit of cost hurts when you have a situation like today's market, which is flat and often down. Consider the costs of owning a stock fund inside an annuity, which adds an additional 1.75 percent to the cost of the fund. The average cost of a mutual fund today is 1.3 percent. Before the investor makes a fraction of a percent, the annuity has to clear those hurdles, which are not inconsiderable in today's unforgiving market."

For more about today's most dangerous investment pitfalls and the need for long-term financial planning, go to the Zero Alpha Group Web site at http://www.zeroalphagroup.com."

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