10 Investment Mistakes to Avoid: Common Errors, Investment Misconceptions, Lack of Knowledge and Greed!

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1 10 Investment Mistakes to Avoid: Common Errors, Investment Misconceptions, Lack of Knowledge and Greed! Investors are often enticed by free or easy money, free bonuses, chasing returns, key emotions (Fear and Greed), get-rich-quick schemes, free lunch seminars, and other enticing investment offers. "There is no such thing as a free lunch." If you re a free lunch seminar attendee: Good Luck you ll need it! And if you think that advice Mr. Broker is giving you is objective, think again. A few years ago, such promises enticed many people to invest in Variable Annuities and Equity Index Annuities. But many investors didn't understand the investments they were SOLD; they only listened to the Free Money Bonus offer or the promise of great returns with little to no risk. Again: there is no Free money! Free money is going to cost you more than you realize! Annuities are only one problem investors face. Even more threatening to your wealth is not understanding the role of your broker (or so-called advisor). 1. Mistake! That s right: most brokers operate under TITLES THAT SOUND GOOD, BUT AT THE END OF THE DAY MOST BROKERS ARE JUST SALESMEN OF INVESTMENT PRODUCTS! Brokers like to use titles like advisor, financial consultant, retirement specialist or registered investment representatives. In reality, these titles are meaningless; they are nothing more than a fancy but meaningless title that confuses investors into believing that person does more than broker or sell investment products. Most brokers do not manage investment portfolios; rather, they sell the investments their firms represent. Most investors 1 st Mistake is believing the advice they are getting from Mr. Broker is objective or in their best interest it is often NOT! Understand the difference: a broker (or so-called advisor) is just a salesman and not a money manager! There are actual Money Managers that work without the conflicts of Wall Street, and they go by the title of a Fee-Only Registered Investment Advisor more on that later. 2. Mistake! Taking too much risk, and not taking enough risk. The key to successful investing is not to avoid risk altogether, but to take the appropriate risks, and recognize the risks you are taking. To avoid unpleasant surprises, do your homework. Nothing beats reading the prospectuses and checking the long-term performance of your investments. Here s the problem: people typically do more research when they buy a refrigerator or a television than when they invest thousands of dollars in a stock.

2 The sad fact is that individual investors make the same errors over and over. But don't be dismayed. Even as a novice investor, you can improve your odds dramatically just by avoiding the following common mistakes. 3. Mistake! Chasing Return or What s Hot Now. Don't be so dazzled by an investment or stock's statistical data that you don't properly analyze or understand its value. If you buy a stock with a low price-earnings ratio, make sure you understand what forces have pushed it down. In this bull market, there are few (if any) unrecognized bargains. It could be a good deal, but it's probably not so check it out before you buy it. Similarly, if a stock boasts a lofty dividend, there's a reason. Higher yields indicate that Wall Street feels the stock is high risk, and that means you need to question whether it can sustain that attractive yield. 4. Mistake! Coming late to the party. Generally you should avoid buying a stock that's already had a big run-up in value, unless you have a solid reason for expecting it to keep rising. Particularly vulnerable, are stocks that have received a great deal of recent media exposure. Prices of highly publicized stocks may have reached their peak and be poised for a correction. I advise waiting at least a month after such exposure, before making any buys. 5. Mistake! Managing your own money when you clearly don t have the time or expertise to do so. If you own just a handful of individual stocks, you're taking on two kinds of risk. One is the overall market risk (systemic risk) and the other is the risk associated with a particular stock and the underlying company (unsystemic risk). Regardless of the dollar amount in your portfolio, making good investment picks requires keeping track of individual companies, their industries and overall economic trends. Before investing, ask yourself whether you have the time and expertise to do that on your own. If not, check out alternatives. Hire a real money manager: a Fee-Only Registered Investment Advisor who works for you not a brokerage house or Wall Street firm. 6. Mistake! Failure to diversify. Back when General Electric (GE) was one of the most successful and stable companies in the U.S., many investors (particularly GE employees) didn't think twice about loading their portfolios with shares of company stock. They learned a painful and expensive lesson: Even the best company can fall on hard times. When GE's corporate performance faltered, the stock price fell sharply and the dividend was cut. Many employees and retirees saw both their equity and income plummet. I have seen this major mistake time and time again. An investor loads up on, say a bank stock it does well, but they never sell because they don t know when. Eventually that investment collapses and never comes back; you lose your retirement because of lack of a SELL discipline. Have a BUY discipline and a SELL discipline; not having either will devastate your portfolio. Remember BUY and HOLD is not an investment strategy; eventually every investment may need to be sold! If your portfolio leans heavily toward a single stock or industry, you definitely need help, and fast.

3 If you own a handful of mutual funds, don't assume that you're diversified. Review the funds' holdings. For example, if your portfolio is heavily weighted toward the health industry, then a health industry downturn could cripple you and your retirement. 7. Mistake! Investing without an Investment Strategy. Your broker doesn t have one do you? In my 27 years of managing portfolios, I have found very few do-it-yourself investors or individuals working with Brokers/so-called advisors have an investment strategy, and have it in writing. No Investment Strategy means No investment management; and that means Financial Disaster! Remember Mistake #1: Most brokers (advisor, financial consultant, retirement specialist) are just salesmen, that s it. Most brokers do not manage investment portfolios; they only sell the investments their firms represent. Stop the Bleeding Get an Investment Strategy and follow it. Take into consideration your long-term financial goals and your level of risk tolerance. Without a financial blueprint (a written Investment Strategy), it's difficult to recognize the investments that match up with your goals in terms of risk, diversification and income. People tend to invest on an impulse and make bad investment decisions based on Fear and Greed. Whatever your financial profile, it's key for you to understand the level of risk of any potential investment. Now, don t avoid the investment markets altogether. All this talk of risk may make you nervous that s understandable. But resist the temptation to bury your head in the sand and stash your money in the bank. You may think you're playing it safe, but you're not. You're letting inflation and taxes gnaw away at your savings. People who have no tolerance for risk in the investment markets are taking an alternative risk - a loss in purchasing power. 8. Mistake! Basing decisions on tax concerns. You need to consider the tax consequences of your investments, but don't let the tail wag the dog. Don't buy municipal bonds, for example, just because they're tax-free. Their return may not be better than the after-tax return of a higher-yielding option. Tax-free investments, like all others, must fit into your overall investment strategy. Concentrating on just tax issues can blind you to bigger problems. 9. Mistake! Failure to understand the costs of your investments. When you're salivating over the prospect of substantial returns, it's easy to overlook the costs; both the costs you see and the costs you don t. But beware, because costs vary widely and can be substantial. Sales commissions on annuities, for example, run as high as 12%. While that free money bonus sounds good, it will cost you in your future returns, when that 15 year annuity pays you a below-market interest rate to make up for it! The commission on some life insurance products may be as much as a year's premium. Watch out for mutual funds with back-end loads, large yearly loads or 12b-1 fees. These funds do not charge a commission when you buy,

4 but you will be liable for a hefty fee if you sell the fund within a certain amount of time, usually five years. Thinking that you are getting cheap or commission-free advice from Mr. Salesman is a Fools game. Your cost for the investment products they sell you, for supposedly no commission, is going to cost you dearly in high internal fees, mark-ups and long-term surrender fees. I had one individual tell me his broker doesn t charge commissions on the bonds he buys but guess again. Here s the thing: it s possible that this investor wasn t paying a commission but he was paying a mark-up. When a broker offers you a product with no commission, the cost is marked up to account for that. Example: a bond sells for $95,000 on the market, and your broker sells it to you for $101,175. That s a mark-up of 6.5%! That means that when you re dealing with a broker, no commission is really costing something! Remember: there are no free lunches. 10 Mistake! Not obtaining objective, cost-effective Real investment management from an Independent Fee-Only Registered Investment Advisor (RIA) /Money Manager. RIA s work as a Fiduciary - legal definition: in your best interest - and can manage your portfolio in a low cost environment without the conflicts of Wall Street. Look for an Independent Fee-Only RIA. You will avoid the conflicts of Wall Street, high internal investment fees, mark ups, high commissions, hidden agendas, sales incentives and best of all, you will have a Real Money Manager who works for you, Not Wall Street, and who manages your portfolio! How To Know If You Are Working With A Fee-Only Registered Investment Advisor? Use Our Fiduciary Questionnaire! Visit and click on the Investor Resources tab for your Copy! Time For Objective Help and Real Money Management! Rezny Wealth Management is an Independent Fee-Only SEC Registered Investment Advisor/Money Manager and we act as a Fiduciary in your best interest. We manage your investments, portfolio and wealth without the conflicts of Wall Street. Understand the difference between your broker/advisor and a Registered Investment Advisor, there is a Big difference. Your retirement depends on it! Rezny Wealth Management Money Management without the conflicts of Wall Street. Call us for a Complimentary Investment Review/Second Opinion; it can t hurt to talk. Best regards, Brian C. Rezny, CFP President Rezny Wealth Management, Inc.

5 Rezny Wealth Management, Inc. There is a Difference! We invite you to experience it. A Registered Investment Advisor Working with Pre-Retirees and Retirees Office locations: 5237 Summerlin Commons Blvd., Fort Myers, FL Ponce de Leon Blvd., Suite 470, Coral Gables, FL NW Executive Center Dr., Suite 100, Boca Raton, FL Ponce de Leon Blvd., Suite 470, Coral Gables, FL Macom Dr. Suite 101, Naperville, IL W. Montello, Montello, WI Phone: (800) Visit our web site: [email protected]