Six Investment Pitfalls

Here's a list of six investment pitfalls from Vanguard:

• Investing without a plan.
• Underestimating the impact of fees and taxes.
• Selecting investments before asset allocation.
• Chasing performance.
• Trying to time the market.
• Not rebalancing your portfolio.

Yep, I've done all of these in my lifetime. Early on in my investing career, when I knew little about the subject and thought I could pick killer stocks better than anyone on the planet, I did all of these -- several times. Then, when I learned a bit more, I became somewhat smarter, but didn't quite get all the facts right again. Now I have some mutual funds that I should have never been in (and want to get out of) but yet have huge capital gains tax implications if I sell them. Making bad decisions early on can certainly have long-term consequences. Hopefully, someone can learn from my mistakes.

So, if these are the investment pitfalls, what are the investment steps you should take? Here are some suggestions:

• Invest regularly.

• Set investment.

• Don't take unnecessary risks.

• Keep time on your side.

• Diversify.

• Minimize investment costs including taxes.

• Allocate your investments properly and rebalance your portfolio regularly.

• Don't listen to the financial media.

For me, all this adds up to investing in index funds.

Comments

[tinyhands]

Your comment about capital gains on the unwanted mutual funds sent me on a 30-minute exploration of irs.gov (courtesy of my employer) and Pub 590 looking for a way to make IRA contributions ('tis the season, you know) in non-cash form. No luck.

You could, however, make charitable contributions in the form of stock or mutual funds. If your level of charitable giving reaches such a level, it could be tax-deductable for you. Your church, for example, might be willing and able to accept shares instead of weekly cash in the plate and you kill two birds with one stone.

[FMF]

"You could, however, make charitable contributions in the form of stock or mutual funds."

GREAT IDEA!!!!!!!

I'm all over this!!!!!

Thanks for the suggestion.

[tinyhands]

Happy to help. Further investigation (Pub 526) reveals that the stock must be held for more than one year and there are certain cases where you must reduce the FMV of the contribution (probably not applicable in this case though). Less than one year, use the cost basis. Also note contribution limitations based on AGI.

If shares are given to a regular (non-charity) individual or entity, the basis also transfers with them. I.e., you can't gift them to your brother-in-law, who gifts cash to you in exchange. Well, you could, if he doesn't mind you sticking him with the capital gains. [See Pub 950 for gifts and Pub 551 for cost basis.]