6 Shocking Investing Mistakes


Amid a seemingly endless number of investment options and well-intended approaches, far too many investors are underperforming the market and not earning the annual returns required to achieve their retirement goals. Why? “It’s because the investment industry has become hyper-focused on risk mitigation, causing advisors and individual investors, alike, to be overly cautious at the wrong times and in the wrong ways,” asserts investing expert Phil Ash, Co-Founder and CEO of Baton Investing, who further underscores, “The problem is exacerbated by Wall Street’s self-serving and misguided propaganda campaigns designed to make the marketplace all-too-comfortable purchasing high-fee, low-return assets.”

Ash reveals the following six investing mistakes that can certainly undermine profit potential and result in opportunity loss.

1. Over-Diversification.

This is public enemy #1 and among the most widespread approaches of professional advisors and amateur DIY investors, alike. Simply put, you can’t beat the market if you’re so diversified you essentially ‘are’ the market. Those invested even in one mutual fund are likely already over-diversified. In a recent poll, a majority of average investors indicated that, yes, “they expect to beat the market” yet they also indicated they currently have a “well-diversified portfolio.” This is an oxymoron that far too many just don’t understand.

The over-diversification offense is most prevalent in 401(k)s and 529s, which constitutes many people’s primary investment assets, where target-date funds and poor-performing mutual funds are the only options. Any money needed in more than five years should just go 100% in a low-fee S&P 500 fund that, in most retirement plans, is the “best of the worst” options. The S&P 500 has historically delivered 10% returns and recovered from any downturn in less than five years. While the S&P does not offer exposure to cyclical small- and mid-caps, it does deliver international exposure.

The bottom line is that it just doesn’t make sense to craft a diversified portfolio of high-fee actively-managed funds that rarely beat the S&P over the long-term.

2. Robo-Advisors.

These tech platforms have done a great job of democratizing money-management services by reducing the typical financial advisor fee from 2% to 0.2%, but they perpetuate the problem of mediocre returns. They all continue to use Modern Portfolio Theory and the Efficient Frontier as the basis for their advice, which is basically a diversification strategy that veritably guarantees you’ll underperform the market.

Of course, younger investors probably have enough of a time horizon for sub-S&P performance to work out okay. But for those in their 40s or later who have figured out that even the 10% historical annual returns of the S&P aren’t enough, then a higher-performing strategy than robo-advisors is in order.

3. Tax-loss harvesting.

Believe it or not, this is a strategy utilized by many personal finance professionals and one of the robo-advisors key selling points. This is the practice of selling a loser security (that you were advised to buy) in order to eke out a small tax savings on some of your winners. Seriously? An investor is already behind the 8-ball and some minor tax benefits are being touted as the antidote? No, thanks.

Investors need market-beating performance. They need winners. Tax-loss harvesting isn’t a bad tactic, but investors shouldn’t let related marketing hype excuse or overshadow an advisor’s otherwise paltry performance.

4. Imposing an Age Limit.

Everyone, including 75-year olds, should put all the money they don’t need in the next five years into growth stocks. Yep, you read that correctly. If you don’t yet have your nest egg established, you need to keep growing your money. And, when determining the desired size of your nest egg, you would be wise to assume you’ll live for longer than you think.

For pre-retirement folks, money needed in less than five years should be in a less-volatile passive portfolio (e.g., BND, GLD, SPY and cash) with perhaps the portion needed in the next two years completely in cash. Adjust the cash amount based on individual risk tolerance. For retirees, the less-than-five-year money may need to be in safe income-producing bonds and CDs. All other money should be long the U.S. market, as the S&P 500 has always fully recovered from any setbacks within five years. And, if current income is needed, some of the long-term bucket can be invested in higher-yielding income stocks that may have price fluctuations.

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About Author

Phil Ash

Phil Ash, is Co-Founder & CEO of Baton Investing (www.BatonInvesting.com), which is setting a new standard of transparency and performance for investing companies. Ash, a former CPA, financial analyst and investment research firm President, helped develop and launch Baton’s proprietary, subscription-based stock picking system that has beaten the market by roughly 300% and bucked mediocrity since 2003. He may be reached online at www.batoninvesting.com.

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