Three Investment Mistakes That Can Drain Your Portfolio
Three Investment Mistakes That
Can Drain Your Portfolio
No. 1: Avoid Insurance as an Investment
Insurance products make lousy investments especially life insurance products. Trouble with insurance products is the fees. Most insurance products typically take a big, upfront commission when you start saving. If you understand the phenomenon of compounding, you know that a small change in your savings early on can lead to a big change in your wealth.
For example, the most generous whole-life policies pay about 4.5% a year. The stock market returns about 8% a year on average. So you’re not only starting behind, you’re running at a slower pace.
You are much better off buying term life insurance; so why pay a big chunk of your most valuable savings to fees? You’ve started in a hole, and you’ll never climb out.
No. 2: Don’t Pay Front-Loaded Mutual-Fund Fees
There is no valid reason to may commissions to buy a mutual fund, they have never proven to out preform no-load mutual funds (commission free).
Some mutual funds have fee structures that take a big chunk out of what you invest on the first day… up to 5.75%. That means if you buy $50,000 worth of a front-loaded mutual fund, you start off $2,875 in the hole.
Never invest in a mutual fund without reviewing its fees and expenses. You can do this quickly by going to the financial information website like Morningstar, entering a fund’s ticker symbol, and clicking “expense.”
No. 3: Never Use Market Orders
When buying securities (stocks), use a limit order vs. a market order. A market order will fill your order essentially immediately at any price. A limit order sets the maximum price you are willing to pay, and it will sit unfilled until your broker can get that price or less (or until you cancel the order).
If a stock price is moving higher, you can easily pay too much for a stock using market orders. Use a limit order by setting your price at the same price you see in the market, and then wait.
You can even place a limit order percentages below current price and wait until the price drops at a later date.
Daniel F. Iuculano, AAMS CMFC
Accredited Asset Management Specialist
Chartered Mutual Fund Counselor
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