Follow The Rules
To err is human; to put your personal finances in order is divine. One expert shows you eight common mistakes you can avoid.
"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.
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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.