What are the three most common mistakes made by investors? According to a survey of advisers by Chris Carosa, they are:
• trying to beat the market;
• playing it safe; and
• timing the market.
Investors either get too aggressive — which leads to adviser turnover — or they get too conservative, especially after a crash when the market is at its lowest. There are no proven market timing formulas, especially when investors are constantly turning over funds. The dirty little secret is that many mutual funds shareholders do worse than the fund itself because many funds tank as they get more assets. Investors who are led by emotion tend to react rather than plan, especially when they consume a steady diet of bad news. Understanding these bad behaviors can help advisers focus their education and planning on helping their clients avoid these fundamental mistakes.
