Common Mutual Fund Investment Mistakes

Added May 1, 2003 by WGN-TV Show Notes -- May 1, 2003

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Summary: How much do you know about your mutual fund investments? Not knowing what companies are held by the different funds in your portfolio is another common investment mistake. The best way to avoid investment mistakes is to keep it simple. By building a well-diversified portfolio your financial future will be secure.

There's nothing worse in a bear stock market than compounding your loss by making mistakes.

How much do you know about your mutual funds?

'I have no clue."

"Ya know I don't know them specifically, but I know that what holdings they have."

"Uh, I know some of them but not off the top of my head."

Investors have poured more than $6 million into more than 10,000 mutual funds. The only problem is, if you make a mistake, it can really cost you.

"Investors tend to chase recent performance and that could be a mistake up and down and you buy something that's just moved up, chances are it's next move is going to be back down," says Ralph Wanger, Liberty Acorn Fund.

Not knowing what companies are held by the difference funds in your portfolio is another common mistake.

"When you drill down and take a look at their portfolios, what you find is that you have funds that are doing a lot of the same things," says Christine Benz, Morningstar Fund Investor Magazine.

The tools and research at www.morningstar.com help you decide which mutual finds will fit into a balanced portfolio.

"Our style box which gives you a visual snapshot of how a fund is investing is a great starting point for investors trying to get their heads around," says Christine Benz.

The best way to avoid mistakes is to keep it simple.

"I think an investor can do really well with 3 or 4 really well chosen funds," Benz says.

Make sure you don't fall into the fee trap. Pay attention to how much the fund costs and you'll increase your overall rate of return.

"When you think you are going to make 20 percent a year, you don't care whether fees are a half a percent, or one percent or two percent," Wanger says.

And avoid funds with a load, or commission.

"No load funds perform just as well as funds with loads and in fact I feel an investor can do very well for him or herself by buying a portfolio of all no-load funds," Benz says.

By building a well-diversified portfolio your financial future will be secure.

Published: May 1, 2003

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