There’s a difference between trying to do the right thing and actually getting it done. The biggest mistakes mutual-fund investors make fall right in the middle, where an investor trips over the fine line that separates good investing habits from bad.
In talking to financial experts and fund specialists, as well as reviewing industry statistics about ownership and asset flows, it’s clear that the investing public keeps trying to do the right thing, it just doesn’t always get the best results.
Here are the seven biggest mistakes fund investors make. If they describe the way you have been investing, it might be time to check your portfolio — and your mindset:
There is nothing wrong with buying only funds that do well according to stars, numbers or any system, but make sure the fund adds diversification and strategy to your portfolio, rather than bringing only a past that was good enough to earn a top grade,
Too many investors can’t explain what their funds do and why. They may know they own a large-cap growth fund or an index fund, and they’ll review the ratings and performance, but when it comes to the nuts and bolts, they don’t know where to start. For example, a mutual fund is considered “diversified” once it has more than 16 stocks, but it can still be concentrated or focused in a certain market sector. Likewise, investors who buy funds that top the charts don’t necessarily know what those funds did to stand out from the pack.
Owning five or 10 mutual funds does not make an investor diversified if most of those issues reflect one or two asset classes. Investors need more than a “good” fund; they need funds that enhance their holdings, diversify risk, bring additional asset classes into play and help the portfolio achieve their goals over time.