Dian's Column
Dian's Archive


Investing Mistakes - We All Make Them

Like it or not, the road to building wealth is curvy one and fraught with pot-holes---many of them due to our own making.

In a perfect world, no one would make investing mistakes and those with the aspiration, commitment and drive, could become millionaires many times over. But the world isn't perfect and Wall Street's environment is a fickle one. Getting to millionaire status via stock and bond investing typically means taking it on the chin a number of times---but that's nothing to fear as long as you recognize it.

"So many investing mistakes are within the investor and not the investment itself, " says Sheldon Jacobs, publisher and editor of the monthly newsletter, The No-Load Fund Investor. "In the bull market, people were too bullish. And then we got into a bear market and many people have become to bearish, too."

To help his newsletter readers get out from under some of the investing errors, Jacobs came up with what he calls the "dirty dozen"--- 12 of the most common mistakes he's seen investors make over the past few years. Here's what's included in that list:

  1. Thought the bull market would last forever.
  2. Believed they could buy and hold forever because in the long run the market always gains.
  3. Took excessive risks by overweighting technology.
  4. Didn't properly research investments.
  5. Blindly believed corporate financial statements and analysts' opinions.
  6. most in a bear market.
  7. Thought the Internet would change business to the extent it didn't matter what they paid for Internet stocks.
  8. Thought asset allocation was for the uncertain and fearful. Why invest in less than the best?
  9. Thought fund managers would protect their assets in a bear market.
  10. Believed your broker was looking out for their interests first.
  11. Didn't care how high their transaction and overhead costs were.
  12. Quit their job to day trade.

These lessons from the past bring us into today's markets where the bears appear to losing their hold on equities as evidenced by the performance of the Dow Jones Industrial Average---it was up over 10 percent year-to-date through June 20. In addition, the performance of the average U.S. diversified stock fund that Lipper tracks--- up solidly over 14 percent, year-to-date through June 19.

While Jacobs thinks the market has turned upward, he sees investors sitting on the sidelines while the pros are playing. " I don't have the numbers to back this up so maybe I'm wrong, but, typically the first stages (of recovery after a bear market) are more of a professional market. The small investor tends to get his courage back usually in the second or third year."

Going forward, Jacobs warns that there is still some "misguided wisdom" keeping investors out of the market that could prove faulty over the coming months. That misinformation includes:

  • Thinking stocks are no longer a viable investment medium.
  • Waiting for all the economic and political problems to be resolved before investing.
  • Sticking with ultra-safe investments such as guaranteed investment contracts, stable value funds, money market funds, and other principal-protection products.
  • Being overweighted in value funds and gold funds.
  • Owning long/short hedge funds.
  • Holding bond funds with long maturities.

Bottom line: Be careful not to overreact to market conditions---no matter what they are. Or, the investing mistakes that you have made in the past. Both could be lethal to your investing future.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

[ top ]