"Bulls and bears aren't responsible for as many stock losses as bum steers." --Olin Miller
Recently, a new client came in to meet with me. About to retire, he wanted to be sure he could maintain his lifestyle with his current investments. As he pulled out his retirement plan statement, his whole demeanor changed. "I can't believe I've left all this money in a money-market fund for the past six years," he said. "I could have done so much better if only I had invested a little of it in the stock market. I was just so afraid of losing it that I didn't do anything."
Certainly, this investor was justified in his fear of market fluctuations. There's always some measure of risk when investing in stocks--and a chance you'll lose money. Unfortunately, however, thanks to the bite taken by inflation and taxes, you can also lose purchasing power in money-market funds and similar investments. Our investor didn't realize his money-market fund was neither insured nor guaranteed by the U.S. government. And there's no assurance such a fund will maintain a stable net asset value of one dollar.
The moral of the story? To retire in the style to which he's accustomed, our investor may be forced to work longer or to invest more aggressively than he might have had he included a partial investment in stocks in his portfolio from the start.
Wouldn't it be nice to learn from someone else's mistakes for a change, or at least to avoid making the same mistakes twice? With that in mind, here are eight of the most common errors made by astute (and some not-so-astute) investors. Tally up how many of them you've made, and review the sections you're weak in. If you tick off fewer than two, consider yourself an expert; three to five, you need some help; six to eight, it's time to brush up on the basics of personal finance! Read on to see how you fare.
Lorayne Fiorillo was an Entrepreneur columnist for five years. A senior vice president at a major brokerage firm and a financial advisor since 1986, she currently manages over $120 million in assets for more than 600 clients.