Common Investment Mistakes - Part 2

As with every industry, the investment business is fraught with negligence, risks, and errors. Some of these things are impossible to avoid, but in an effort to help you sidestep the easy ones, here’s the second part in my series on the most common investment mistakes made by newbies and seasoned investors alike. Hopefully this will help stop bad history from repeating itself as it so often does in the market (and in life)!

OVERZEALOUS INVESTORS

While it’s good to keep a close eye on your pocketbook, there is such a thing as over monitoring your portfolio. The reason for this is that the market will ALWAYS fluctuate, which can lead to knee jerk reactions when facing short-term market moves. Therefore, if you are constantly checking your account and hoping to see it go up, up, up, you may wind up feeling crazy as you watch it ride the waves of the big financial picture. It’s also not good to be on the opposite extreme – some investors don’t even know what securities they hold in their portfolio – but try to find a comfortable balance.

EMOTIONAL INVESTING

While it’s important to listen to your emotions in most parts of your life, one place they definitely DO NOT belong is in dealing with your investment portfolio. If you are the type of investor who obsesses over every move in the market, allowing it to affect your happiness much like a sports fanatic, I would advise you to stay away from CNBC and spend more time watching your favorite team. Investing isn’t a drag race, it’s a marathon! Remembering this, you’ll find your portfolio – and your mood – may be elevated.

Common Investment Mistakes - Part 1

Unfortunately, many of us may KNOW the definition of insanity (trying the same thing over and over – each time expecting different results), but when it comes to investing, we don’t remember it when we really need to. In order to be a mostly successful investor (everyone takes it on the chin sometimes) you need to start learning ASAP if you haven’t already. Even if you don’t have money right now, chances are good that some day you will, so make sure you’re ready when that day comes! Here’s the first in a series of blogs that will deal with some of the most common mistakes new (and seasoned) investors make.

 

MARGIN
Do you know what a margin account is? If not, take heed – ‘margin’ is the amount of money your brokerage house will loan you to buy more securities. Most big firms will allow you to ‘margin’ up to 50% of the current value of your portfolio – using your securities much like a credit card. Also like a credit card, you wind up paying interest on the borrowed money, and face the possibility of dealing with a margin ‘call’ if your balance falls below a predetermined point (which can easily happen with a slight downturn in the market). My advice is to avoid margin accounts and simply save up money before you make additional investments.

 LIMIT ORDERSNew investors often use limit orders when they start out instead of market orders. A limit order sets the exact price that you will pay for a stock or exchange-traded fund, and market orders are filled at the current price of the security at the time when you enter the trade. If you consider yourself to be a long-term investor (someone who’s in it for the long haul – not a trader) then you should only place market orders in most cases. Only those with a lot of activity (buying and selling) in their account should be concerned about a few ticks of the price.

Donor Advised Funds

These funds are currently led by the Fidelity, Vanguard, and Schwab steamrollers, and are quickly rising to popularity in the world of charitable giving. One of the attractions is that you don’t have to be rich to participate (although you certainly can be). They are also easy to use, liberal when it comes to what they accept as donated assets, and adept at aiding donors with organizations they wish to gift to. In fact, when you look at the big picture, it’s easy to see why some advocates of Donor Advised funds are ready to abandon the idea of a foundation altogether.

From 2005 to 2006, donor advised fund assets increased from $15.9 billion to $19.2 billion and they now have accounts that accept initial donations as low as $5,000 as well as accounts that have hundreds of millions of dollars. Unlike foundations, donor advised funds do not have higher education limits, do not require you to disclose all grants in public documents, and do not require you to pay a 2% excise tax.

Funding a donor advised fund account is easier than you may realize, since the types of assets that are accepted are quite varied. In fact, funding options not only include publicly traded securities and cash, but also allow heirloom items like jewelry or paintings, as well as ownership of certain types of organizations. The donor advised fund will accommodate these unconventional items by bringing in experts first to evaluate, and then to liquidate, these types of items.

How To Avoid Raising Your Home Insurance Rates

Did you know that if you’ve filed as few as three (or heaven forbid more) claims in the past year, that your home insurance company can raise your rates or even refuse to renew your policy. The reason is that insurance companies face large administrative expenses even for the smallest claim.

Water related claims are the most likely type of claim to get your rates raised or your coverage dropped, because they often lead to more claims for additional damage in the future. In fact, in a recent study by the California Insurance Dept., 25% of the companies surveyed had refused to renew policies of homeowners who had filed one or two non-water related damage claims in the preceding three year period, while a whopping 32% refused to renew customers with only one or two water related claims.

And, as with car insurance, being dropped makes it more difficult to sign up with a new insurance company. The Comprehensive Loss Underwriting Exchange database from ChoicePoint – whose acronym cleverly spells CLUE – allows insurance companies to share information for a minimum of five years.

CLUE can also hinder new homeowners who are trying to get insurance by holding the previous homeowners’ claim history against them! And yep – you guessed it – if the old homeowners happened to make claims related to water damage, the property will probably be difficult to insure. In order to avoid this pitfall, request a copy of a home’s CLUE report before buying. Although the seller may have to obtain it for you, this could save you money and stress depending on the number and nature of previous claims.

Choosing Wisely With Medicare

Since Medicare private fee for service (PFFS) plans have grown dramatically over the past three years, trying to decide between them can be a nightmare.

The main benefit of PFFS plans is that they do not have a specific network of health care providers. This allows patients to receive care from the doctor of their choice without racking up costly fees. Health insurance companies that are under contract with the Federal Government run PFFS plans, and if you are interested in this service, you simply need to ask about enrollment in the Medicare Advantage plan.

Seniors who are enrolled in the Medicare Advantage plan pay the same Part B premiums for coverage of doctor bills as other seniors who are enrolled in traditional Medicare. Although enrollees do pay some other additional fees in order to be enrolled in the Medicare Advantage plan, they receive many more benefits and experience less out of pocket expenses.

PFFS plans that are a part of Medicare Advantage are also available anywhere in the United States, making them more attractive for seniors who love to travel. Wherever you go, the doctor only has to accept Medicare and the terms of the PFFS.

Due to more extensive marketing over the last few years, more and more seniors have been signing up for Medicare Advantage and PFFS plans. As a result, seniors need to be on the lookout for scam PFFS plans that will promise enrollees that they can visit any physician, but will not actually do anything but collect premiums.

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