Avoid The Five Worst Mistakes For Mutual Fund Investors

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/

How to Avoid Unexpected Consequences in Your Financial Future

One of the most difficult situations an investor can face is to have done the right thing and suffer a wrong result. Depending on others for your future financial well-being may sometimes have unexpected negative consequences.

If you participate in your employer's pension plan but the company fails or has not properly funded the plan, you may be left in a precarious financial position. The same may occur in municipalities that have underfunded pension plans. Recently some small cities have defaulted on employee pension obligations. What about the people who relied on the pension plan to fund their retirement? Was their trust in their employer justified?

In the years following the implementation of Roth IRAs--a retirement account that allows withdrawals which avoid taxation--government's perceived need for more money prompted discussion of possibly taxing Roth IRA withdrawals. Some members of Congress were considering breaking the promise made to Roth IRA participants. Would the government do something like that? Consider what happened to those receiving Social Security benefits. Social Security benefits were, at one time, not subject to tax. Now Social Security payments are taxable, depending on the amount of your other income.

Lesson one: do not put all your eggs in one basket--especially if someone else is holding the basket.

Lesson two: your trust in other-directed programs--employer or government--may be unwarranted. Expect that everything promised in the present will not necessarily occur in the future. Social Security for future generations may not have the same form as the current program. What happens when changes are made? Who knows? People who are contributing to Social Security and Medicare may not have the same benefits as current recipients.

Lesson three: employer and government-sponsored programs are always subject to change. Your financial future is too important to hand over to someone else. It is better to have an account that you control. The assurance of knowing that your own personal nest egg will be there is a greater benefit than promised tax savings or promised employer matching or reliance on a government program.

Lesson four: establish your own investment regimen that you will maintain throughout your working years. Choose an option that you understand, that allows consistent contributions in line with your budget and that gives you the ability to receive income when you no longer want to work.

Lesson five: develop the habit of depending on yourself. Remain dedicated to your own personally controlled investment account. Your long-term financial well-being is in your hands.

Howard Feigenbaum is Registered Principal and Owner of Sharemaster, a Broker-Dealer firm that specializes in monthly dividend income funds.

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller

This article is a general discussion of the subject and is not intended as a solicitation or specific investment advice.

Copyright 2011 Sharemaster

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