If you are looking to start investing, mutual funds may be your safest and easiest way to begin building wealth and an investment portfolio. But you should be aware of some of the most common mistakes that are made before investing your hard-earned dollars.
As with any type of investment, certain risks are unavoidable. You must be comfortable with the fact that the markets move up and down and unless you have a crystal ball, picking the highs and lows is not an easy task. But everyone can avoid the following mistakes, just by taking the time to ask some questions and doing a little research.
Five Common Mutual Fund Mistakes That Will Cost You:
1. Buying Heavy Commissioned Funds: With all the fund choices out there, you should be looking for No-Load funds first. These have no commissions. If you are looking at funds that are A, B, C or Adviser class funds, you are probably going to pay too much for the fund. A-class are front load commissions, B-class are back loaded with commissions, C-class funds carry a much higher annual expense charge every year and Adviser-class funds are usually one or more of the above.
2. Placing Everything One Aggressive Stock Fund: One of the biggest mistakes that is made by many fund investors is to think that just because a mutual fund is a diversified investment, that having only one aggressive fund is all they need. There are many different types of funds and each invests in its own way. Aggressive funds are risky, money market funds are safe, bond funds have more risk than money markets and international funds can actually reduce risk if properly selected. If you only want one fund, it should be a broad-based fund that invests in stocks, bond, international and maybe some real estate or even precious metals and natural resources.
3. Delaying Your First Purchase: A problem that many new mutual fund investors run into is not getting started. They feel uncomfortable with moving their money out of cash into a fund because they may not believe they have researched enough or learned enough about the fund's management. Procrastination can cost plenty over time. Pick a nice balanced or moderate allocation fund and start adding money on a regular basis. As your savings grow, you can continue to research other funds and eventually add another to the mix as your account gets larger. Just Do It!
4. Market Noise Scares You: A big problem that I see every year is people who over react to "market noise". Market noise is the day-to-day fluctuations in the markets and the economy. If you have selected a good quality fund, let them do their job. Markets go up and markets go down, they change nearly every day. But if you watch it daily and it goes down for a week or two, don't panic and sell everything. It will probably change direction right after you do and then you will lose those gains. A 5% to 10% pullback every now and then is normal. Keep investing regularly and you will make more in the long run.
5. Listening To Others Advice: Friends, neighbors or co-workers may offer advice on which stocks or funds to invest in. Unless they are specifically qualified in some way, why would you want to use their advice. If they are an investment adviser, stock broker or financial planner it would be different. Hot tips from a friend usually end up losing money. If you do your research and find a quality fund, you will be better off than taking advice from your auto mechanic or office secretary.
Summary: Investing can be fun and rewarding for those that make it a regular part of their life. Start small and expand as your wealth and investment portfolio grow. If you avoid these mistakes, you should have a pleasant experience and learn more as you go. As with anything, experience builds expertise and the only way to get investment experience is to start investing. Make the most of your money and be patient. Time is a great tool in the investment world.
To discover additional investment, financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.
About the Author:
Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program.
Keith is also the author of "How To Get Your College Education For Less". Available on Amazon.com - ISBN No: 978-1-4538-2053-7.
You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com/
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